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THE PRINCIPLES

POLITICAL. ECONOMY,

AND

TAXATION.

THE PRINCIPLES

POLITICAL. ECONOMY,

AND

TAXATION.

THE PRINCIPLES

POLITICAL ECONOMY,

AMD

TAXATION.

BY DAVID RICARDO, ESQ.

THIRD EDITION.

LONDON:

JOHN MURBAY, ALBEMARL£<STRE£T.

1821.

G. WOODPAIX, PRIHTBJIy ANOBXM^OUJlT, IKINNBR-STRAT, LOtllK>tl<

PREFACE-

The produce of the earth — all that is derived
from its surface by the united application of
labour, oiachinery, and capital, is divided
among three classes of the conununity;
namely, the proprietor of the land, the owner
of tiie stock or capital necessary for its cul-
tivation, and the labourers by whose indus-
try it is cultivated.

But in different stages of society, the pro-
portions of the whole produce of the earth
which win be allotted to each of these classes^
under the names of rent, profit, and wages,
will be essentially different; depending ma^ly
on the actual fertility of the soil, on the accu-
mulation of capital and population, and on
the skill, ingenuity, an.d instruments employ-
ed in agriculture.

To determine the laws which regulate tjiis
distribution, is the principal prQblem in Po-
Htieal Economy: much as the science has
heesBL improved by the writings of Turgot,

Stuart, Smith, Say, Sismondi, and others,
they afford very little satisfactory information
respecting the natural course of rent, profit,
and wages.

In 1815, Mr. Malthus, in his « Inquiry
into the Nature and Progress of Rent," and
a Fellow of University College, Oxford, in
his " Essay on the Application of Capital to
Land," presented to the world, nearly at the
same moment, the true doctrine of rent;
without a knowledge of which, it is impossible
to understand the effect of the progress of
wealth on profits and wages, or to trace satis-
factorily the influence of taxation on differ-
ent classes of the community; particularly
when the commodities taxed are the produc-
tions immediately derived from the surface of
the earth. Adam Smith, and the other able
writers to whom I have alluded, not having
viewed correctly the principles of rent, have,
it appears to me, overlooked many important
truths, which can only be discovered after
the subject of rent is thoroughly understood.

To supply this deficiency, abilities are re-
quired of a far superior cast to any possessed
by the writer of the following pages ; yet, after

having given to this subject his best consi-
deration— afiter the aid which he has derived
from the works of the above-mentioned emi-
nent writers — and after the valuable experi-
ence which a few late years, abounding in
iacts, have yielded to the present generation
—it will not, he trusts, be deemed presump-
tuous in him to state his opinions on the laws
of profits and wages, and on the operation of
taxes. If the principles which he deems cor-
rect, should be found to be so, it will be for
others, more able than himself, to trace them
to all their important consequences.

The writer, in combating received opi-
nions, has found it necessary to advert more
particularly to those passages in the writings
of Adam Smith from which he sees reason to
differ ; but he hopes it will not, on that ac-
count, be suspected that he does not, in com-
mon with all those who acknowledge the im-
portance of the science of Political Economy,
participate in the admiration which the pro-
found work of this celebrated author so justly
excites.

The same remark may be applied to the
excellent works of M. Say, who not only was

the first, or among the first, of continental
ivriterd, who justly appreciated and applied
the principles of Smith, and who has done
more than all othef continental writers taken
together, to recommend the principles of that
enli^tened and beneficial system to the na-
tions of Europe ; but who has succeeded in
placing the science in a more logical, and
more instructive order ; and has enriched it
by several discussions, original, accurate, and
profound*. The respect, however, which the
author entertains for the writings of this gen-
tleman, has not prevented him from com-
menting with that freedom which he thinks
the interests of science require, on such pas*
sages of the ^^ Economie Politique/^ as ap-
peared at variance with his own ideas.

* Chap. XT. part i. '< Des D6bouch^" containsy in partica*
lar, Bome very itaportant principles, which I believe were first
explained b)' Ais distinguished writer.

TO THB

THIRD EDITION.

Ik this Edition I have endeavoured to explain more
fully than in the last, my opinion on the difficult
subject of Value, and for that purpose have made a
few additions to the first chapter, I have also in-
serted a new chapter on the subject of Machinery,
and on the effects of its improvement on the in-
terests of the. different classes of the State. In the
chapter on the Distinctive Properties of Value
and Riches, I have examined the doctrines of M.
Say on that important question, as amended in the
fourth and last edition of his work. I have in the
last chapter endeavoured to place in. a stronger
point of view than before, the doctrine of the abi-
lity of a country to pay additional money taxes,
although the aggregate money value of the mass of
its commodities should fall, in consequence either
of the diminished quantity of labour required to
produce its corn at home, by improvements in it»

husbandry, or jfrom its obtaining a part of its com
at a cheaper price from abroad, by means of the
exportation of its manufactured commodities. This
consideration is of great importance, as it regards
the question of the policy of leaving unrestricted
the importation of foreign com, particularly in a
country burthened with a heavy fixed money taxa^
tion, the consequence of an immense National Debt.
I have endeavoured to shew, that the ability to pay
taxes, depends, not on the gross money value of the
mass of conunodities, nor on the net money value
of the revenues of capitalists and landlords, but on
the money valiie of each man's revenue, compared
to the money value of the commodities ydiich he
usually consumes.

MarcA 96, 1821.

CONTENTS.

CHAP. Paoi

I. On Value ; 1

II. On Rent 53

III. On the Rent of Mines 76

IV. On Naturaland Market Price 80

y. Off Wages 86

VI. On Prq/ks 107

VII. Off Foreign Trade 131

VIII. On Taxes l62

IX. Taxes on Raw Produce 169

X. Taxes on Rent 191

XL Tithes 195

XIL Lan^Tax 201

XIIL Taxes on Gold ; . . 214

XIV. Taxes on Houses 226

XV. Taxes on Profits 231

XVL Taxes on Wages 245

XVII. Taxes on other Commodities than Ram Pro-

duce 281

XVIII. Poor Rates 300

XIX. On SuddmCSkangesinthe Channels ^Trade 307

XX. Value and Riches^ their Distinctive Pro*

perties 320

XII

CHAP.

XXL

XXII.

XXIIL
XXIV.

XXV.

XXVI.

XXVII.

XXVIII.

XXIX.
XXX.

XXXI.

XXXII.

CONTENTS.

Paoi

Effects of Acmtnuiatioti on Profits and In-

terest 338

Bounties on Exportation and Prohibitions

of Importation 354

On Bounties on Production 380

Doctrine of Adam Smith concerning the

Rent of Land 388

On Colonial Trade 403

On Gross and Net Revenue 415

On Currency and Banks 421

On the comparative Value of Gold^ Com^
and Labour^ in Rich and in P^or

Countries ••• ••^•.•* 448

Taxes paid by the Producer » • 457

On the Influence of J)cmand and Supply

on Prices 460

On Machinery 466

Mr. MaUhu^s Opinions on Rent . • . • » 483

CHAPTER L

OJV VALUE.

SECTION I.

The value of a conmodity, or the quantity oj any other com^

modityfor *mhich it mil exchange^ depends on the relative

quantity of labour ixihich is necessary fyr its production,

and Tua on the greater or less compensation which is paid

for that labour.

It has been observed by Adam Smith, that " the
word Value has two different meanings, and some-
times expresses the utility of some particular object,
and sometimes the power of purchasing other goods
which the possession of that object conveys. The
one may be called value in use ; the other value in
exchange. The things,'* he continues, " which have
the greatest value in use, have frequently little or
no value in exchange ; and, on the contrary, those
which have the greatest value in exchange, have
little or no value in use." Water and air are abun-
dantly useful ; they are indeed indispensable to ex-
istence, yet, under ordinary circumstances, nothing

2 ON VALUE. I^CHAP. I.

can be obtained in exchange for them. Gold, on
the contrary, though of little use compared with air
or water, will exchange for a great quantity of other
goods.

Utility then is not the measure of exchangeable
value, although it is absolutely essential to it. If a
commodity were in no way useful, — in other words,
if it could in no way contribute to oiu* gratification,
— it would be destitute of exchangeable value, how-
ever scarce it might be, or whatever quantity of la-
hour might be necessary to procure it.

Possessing utility, commodities derive their ex-
changeable value from two sources: from their
scarcity, and from the quantity of labour required
to obtain them.

There are some commodities, the value of which
is determined by their scarcity alone. No labour
*** can increase the quantity of such goods, and there-
fore their value cannot be lowered by an increased

•

supply* Some rare statues and pictures, scarce
books and coins, wines of a peculiar quality, which
can be made only from grapes grown on a particular
soil, of which there is a very limited quantity, are all
of this description. Their value is wholly indepen-
dent of the quantity of labour originally necessary
to produce them, and varies with tlie varying wealth
and inclinations of those who are desirous to pos-
sess them.

SECT. 1-3 ON VALUE. S

These commodities, however, form a very small
part of the mass of commodities daily exchanged in
the market. By far the greatest part of those goods
which are the objects of desire, are procured by
labour; and they may be multipUed, not in one
country alone, but in many, almost without any aa-
signable limit, if we are disposed to bestow the
labour necessary to obtain them.

In speaking then of commodities, of their ex-
changeable value, and of the laws which regulate
their relative prices, we mean always such ccmimo-
dities only as can be increased in quantity by the
exertion of human industry, and on the production
of which competition operates without restraint.

In the early stages of society, the exchangeable
value of these commodities, or the rule which deter*
mines how much of one shall be given in exchange
for another, depends almost exclusively on the com-
parative quantity of labour expended on each, -+-

" The real price of every thing,** says Adam
Smith, " what every thing really costs to the man
who wants to acquire it, is the toil and trouble of
acquiring it. What every thing is really worth to
the man who has acquired it, and who wants to dis*
pose of it, or exchange it for something else, is the
toil and trouble which it can save to himself, and
which it can impose upon other people.'* " Labour
was the first price — the original purchase-money

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4 ON VALUE* [chap. U

that was paid for all things/* Again, " in that early
and rude state of society, whicli precedes both the
accumulation of stock and the appropriation of land,
the proportion between the quantities of labour ne-
cessary for acquiring different objects seems to be
the oxdy circumstance >vhich can afford any rule for
exchanging them for one another. If among a nation
of hunters, for example, it usually cost twice the
labour to kill a beaver which it does to kill a deer,
one beaver should naturally exchange for, or be
worth two deer. It is natural that what is usually
the produce of two days', jor two hours' labour,
should be worth double of what is usually the pro-
duce of one day's, or one hour's labour*.'*

That this is really the foundation of the ex-
changeable value of all things, excepting those
. \ which cannot be increased by human industry, is
a doctrine of the utmost importance in political
. ' . I X economy ; for from no source do so many errors^
r *^y /,^^ * *^d so much difference of opinion in that science
;^ // 7\ proceed,, as from the vague ideas which are at-
f '■ ' *'^ ' tached to the word value.

'» '' T i

>/ . Kf^Jif^^ If the quantity of labour realized in commodi^
ties, regidate their exchangeable value, every in-
crease of the quantity of labour must augment
the value of that commodity on which it. is exer-
cised, as every diminution must lower it*.

* Book i. chap. 5.

SECT, I.J ON VALUE* S

Adam Smith, who so accurately defined the ori-
ginal source of exchangeable value, and who was
bound in consistency to maintain, that all things
became more or less valuable in proportion as
more or less labour was bestowed on their produc-
tion, has himself erected another standard measure
of value, and speaks of things being more or less
valuable, in proportion as they will exchange for
more or less of this sta&dard measure. Sometimes
he speaks of com, at other times of labour, as a
standard measure ; not the quantity of labour be-
stowed on the production of any object, but the
quantity which it can command in the market:
as if these were two equivalent expressions, and as
if because a man's labour had become doubly effi-
cient, and he could therefore produce twice the
quantity of a commodity, he would necessarily re-
ceive twice the former quantity in exchange for it.

If this indeed were true, if the reward of j
the labourer were always in proportion to what
he produced, the quantity of labour bestowed,-
on a commodity, and the quantity of labour I ^ . ^ .*.* " J^
which that commodity would purchase, would' *
be equal, and either might accurately measure
the variations of other things : but they are not
equal ; the first is under many circumstances an
invariable standard, indicating correctly the va-
riations of other things ; the latter is subject to
as many fluctuations as the commodities com-
pared with it. Adam Smith, after most ably

>• i

6 ON VALUE* [chap. U

showing the insufficiency of a variable ;mediani,
such as gold and silver, for the purpose of deter-
mining the varying value of other things, has him-

A (A^ self, by fixing on com or labour, chosen a medium

^' L , \no less variable.

ra ^X^ ^ Gold and silver are no doubt subject to fluctua*
^'■^. ^^ /^tions, from the discovery of new and more abun-
^ 3^ *\ i<P dant mines ; but such discoveries are rare, and
j./r^,'Ut their effects, though powerful, are limited to pe-
riods of comparatively short duration. They are
subject also to fluctuation, from improvements in
the skill and machinery with which the mines may
be worked ; as in consequence of such improve-
ments, a greater quantity may be obtained with
the same labour. They are further subject to fluc-
tuation from the decreasing produce of the mines,
after they have yielded a supply to the world, for
a succession of ages. But from which of these
sources of fluctuation is com exempted ? Does
not that also vary, on one hand, from improve-
ments in agriculture, from improved machinery
and implements used in husbandry, as well as
from the discovery of new tracts of fertile land,
which in other countries may be taken into culti-
vation, and which will aifect the value of com in
every market where importation is free ? Is it not
on the other hand subject to be enhanced in' value
from prohibitions of importation, from increasing
population and wealth, and the greater difficulty
of obtaining the increased supplies, on account of

SECT. 1.3 ON VALUE. 7

the additional quantity of labour which the culti-
vation of inferior lands requires ? Is not the value
of labour equally variable j being not only affect-
ed, as all other things are, by the proportion be-
tween the supply and demand, which uniformly /\
varies with every change in the condition of the
community, but also by the varying price of food<
and other necessaries, on which the wages of la- •
hour are expended ?

In the same country double the quantity of labour 4 jl_ ,
may be required to produce a given quantity of food / ^ / • -^
and necessaries at one time, that may be necessary \ *.
at another, and a distant time; yet the labourer's v^, 'v.,.-^
reward may possibly be very little diminished. If ^', c't
the labourer's wages at the former period, were a
certain quantity of food and necessaries, he proba-
bly could not have subsisted if that quantity had
been reduced. Food and necessaries in this case
will have risen 100 per cent, if estimated by the
quantity of labour necessary to their production, ■
while they will scarcely have increased in value, if
measured by the quantity of labour for which they
will exchange.

The same remark may be made respecting two
or more countries. In America and Poland, on
the land last taken into cultivation, a year's labour
of any given number of men, will produce much
more com than on land similarly circumstanced in
England. Now, supposing all other necessaries to

8 ON VALUE. [chap. I.

be equally cheap in those three countries, would
it not be a great mistake to conclude, that the
quantity of com awarded to the labourer, would
in each country be in proportion to the facility of
production ?

If the shoes and clothing of the labourer, could,
by improvements in machinery, be produced by
one fourth of the labour now necessary to their
production, they would probably fall 75 per cent. ;
but so far is it from being true, that the labourer
would thereby be enabled permanently to consume
four coats, or four pair of shoes, instead of one,
that it is probable his wages would in no long
time be adjusted by the effects of competition, and
the stimulus to population, to the new value of the
necessaries on which they were expended* If
these improvements extended to all the objects of
the labourer's consumption, we should find him
probably at the end of a very few years, in posses-
ion of only a small, if any, addition to his enjoy*-
ments, although the exchangeable value of those
commodities, compared with any other commodity,
in the manufacture of which no such improvement
were made, had sustained a very considerable re-
duction ; and though they were the produce of a
very considerably diminished quantity of labour.

It cannot then be correct, to say with Adam
Smith, " that as labour may sometimes purchase ^
greater, and sometimes a smaller quantity of goods^

SECT. 1.3 ON VALUE. 9

it is their value which varies, not that of the labour
which purchases them ;" and therefore, ** that la-
bour alone never varying in its own value, is alone
the ultimate and real standard by which the value
of all commodities can at all times and places be
estimated and compared;" — but it is correct to
say, as Adam Smith had previously said, ^* that
the proportion between the quantities of labour ne-r
cessaiy for acquiring different objects seems to be
the only circumstance which can afford any rule
for exchanging them for one another ;" or in other
words, that it is the comparative quantity of. com«
modities which labour will produce, that deter-
mines their present or past relative value, and not
the comparative quantities of commodities, which
are given to the labourer in exchange for his la-
bour.

Two commodities vary in relative value, and we
wish to know in which the variation has really
taken place. If we compare the present value of
one, with shoes, stockings, hats, iron, sugar, and
all other commodities, we find that it will exchange
for precisely the same quantity of all these thing3
as before. If we compare the other with the same
commodities, we find it has varied w^th respect to
them all : we may then with great probability infer
that the variation has been in this commodity, and
not in the commodities with which we have com-
pared it. If on examining still more particularly
into all the circumstances connected with the pro-

10 ON VALUE. [chap. I.

duction of these various commodities, we find that
precisely the same quantity of labour and capital
are necessary to the production of the shoes, stock-
ings, hats, iron, sugar, &c. ; but that the same
quantity as before is not necessary to produce the
single commodity whose relative value is altered,
probability is changed into certainty, and we are
siue that the variation is in the single commodity :
we then discover also the cause of its variation.

If I found that an ounce of gold would exchange
for a less quantity of all the commodities above
enumerated, and many others ; and if, moreover,
I found that by the discovery of a new and more
fertile mine, or by the employment of machinery
to great advantage, a given quantity of gold could
be obtained with a less quantity of labour, I should
be justified in saying that the cause of the altera-
tion in the value of gold relatively to other com-
modities, was the greater facility of its production,
or the smaUer quantity of labour necessary to ob-
tain it. In like manner, if labour fell very consi-
derably in value, relatively to- all other things, and
if I found that its fall was in consequence of an
abundant supply, encouraged by the great facility
with which com, and the other necessaries of the
labourer, were produced, it would, I apprehend,
be correct for me to say that com and necessaries
had fallen in value in consequence of less quantity
of labour being necessary to produce them, and
that this facility of providing for the support of the

8ECT. lO ON VALUE. 11

labourer had been followed by a fall in the value
of labour. No, say Adam Smith and Mr. Malthus,
in the case of the gold you were correct in calling
its variation a fall of its value, because corn and
labour had not then varied; and as gold would
command a less quantity of them, as well as of all
other things, than before, it was correct to say
that all things had remained stationary, and that
gold only had varied ; but when com and labour
fall, things which we have selected to be our
standard measure of value, notwithstanding all the
variations to which we acknowledge they are sub-
ject, it would be highly improper to say so ; the
correct language will be to say, that com and la-
bour have remained stationary, and all other things
have risen in value*

Now it is against this language that I protest.
I find that precisely, as in the case of the gold, the
cause of the variation between com and other
thin^ is the smaller quantity of labour necessary
to produce it, and therefore, by all just reasoning,
I am bound to call the variation of com and labour
a fall in their value, and not a rise in the value of
the things with which they are compared. If I have
to hire a labourer for a week, and instead of ten
shillings I pay him eight, no variation having taken
place in the value of money, the labourer can
probably obtain more food and necessaries^ with
his eight shillings, than he before obtained for ten :
but this is owing, not to a rise in the real value of

ON VALUE.

[chap. I.

/,»

his wages, as stated by Adam Smith, and more re-
cently by Mr. Malthus, but to a fall in the value
of the things on which his wages are expended,
things perfectly distinct ; and yet for calling this a
1 fall in the real value of wages, I am told that I
I adopt new and unusual language, not reconcileable
with the true principles of the science. To me it
appears that the unusual and, indeed, inconsistent
language, is that used by my opponents.

Ai-

Suppose a labourer to be paid a bushel of com
for a week's work, when the price of corn is 80^.
per quarter, and that he is paid a bushel and a
quarter when the price falls to 40^. Suppose, too,
that he consumes half a bushel of corn a-week in
his own family, and exchanges the remainder for
other things, such as fuel, soap, candles, tea, sugar,
salt, &c. &c. ; if the three-fourths of a bushel which
I will remain to him, in one case, cannot procure him
as much of the above commodities as half a bushel
did in the other, which it will not, will labour
have risen or fallen in value ? Risen, Adam Smith
must say, because his standard is com, and the
labourer receives more com for a week's labour.
Fallen, must the same Adam Smith say, •** because
the value of a thing depends on the power of pur-
chasing other goods which the possession of that
object conveys," and labour has a less power of
purchasing such other goods*

*'*. #

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SECT. II.] ON VALUE. 13

SECTION 11.

Labour of different qualities differently rexarded* This no
cause qfvaricUion in the relative value of commodities.

In speaking, however, of labour, as being the
foundation of all value, and the relative quantity
of labour as almost exclusively determining the re-
lative value of commodities, I must not be sup-
posed to be inattentive to the different qualities of
labour, and the difficulty of comparing an hour's
or a day's labour, in one employment, with the
same duration of labour in another. The estima-
tion in which different qualities, of labour are held,
comes soon to be adjusted in the market with suf-
ficient precision for all practical purposes, and de-
pends much on the comparative skill of the la-
bourer, and intensity of the labour performed.
The scale, when once formed, is liable to little
variation. If a day's labour of a working jeweller
be more valuable than a day's labour of a common
labourer, it has long ago been adjusted, and placed
in its proper position in the scale of value *.

* '* But 'though labour be the real measure of the exchange-
able value of all commodities, it is not that by which their value
is commonly estimated. It is often difficult to ascertain the
proipprtion between two different quantities of labour. The
tim* ipent ia tyiri^ ^iff^rent sorts of ^ork will not always alone
*lfl(^ei:9i]DejJiit prajDortion. The diiF(^rent degrees of ^ardshig^

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14 ON VALUE. [chap. I.

In comparing therefore the value of the. same
commodity, at different periods of time, the consi-
deration of the comparative skill and intensity of
labour, required for that particular commodity,
needs scarcely to be attended to, as it operates
equally at both periods. One description of labour
at one time is compared with the same description
of labour at another ; if a tenth, a fifth, or a fourth,
has been added or taken away, an effect propor-
tioned to the cause wiU be produced on the relative
value of the commodity.

If a piece of cloth be now of the value of two
pieces of linen, and if, in ten years hence, the or-
dinary value of a piece of cloth should be four
pieces of linen, we may safely conclude, that either
more labour is required to make the cloth, or less
to make the linen, or that both causes have ope-
rated.

endured, and of ingenuity exercised, must likewise be taken
into account. There may be more labour in an hour's hard
work, than in two hour's easy business ; or, in an hour's appli-
cation to a trade, which it costs ten years' labour to learn, than
in a month's industry at an ordinary and obvious employment.
But it is not easy to find any accurate measure, either of hard-
ship or ingenuity. In exchanging, indeed, the different pro-
ductions of different sorts of labour for one another, some allow-
ance is commonly made for both. It is adjusted, however, not
by any accurate measure, but by the higgling and bargaining
of the market, according to that sort of rough equality, which
though not exact, is sufficient for carrying on the business of
common life.*' — Wealth of Nations, book i. chap. 10.

SECT. 11.3 ON VALUE. 15

As the inquiry to which I wish to draw the
reader's attention, relates to the effect of the vari-
ations in the relative value of commodities, and
not in their absolute value, it wiU be of little im-
portance to examine into the comparative degree
of estimation in which the different kinds of human
laboiu* are held. We may fairly conclude, that
whatever inequality there might originally have
been in them, whatever the ingenuity, skill, or
time necessary for the acquirement of one species
of manual dexterity more than another, it continues
nearly the same from one generation to another ;
or at least, that the variation is very inconsiderable
from year to year, and therefore, can have little
effect, for short periods, on the relative value of
commodities.

" The proportion between the different rates
both of wages and profit in the different employ* .
ments of labour and stock, seems not to be much
affected, as has already been observed, by the
riches or poverty, the advancing, stationary, or
declining state of the society. Such revolutions in
the public welfare, though they affect the general
rates both of wages and profit, must in the end af-
feet them equally in all diflerent employments.
The proportion between them therefore . must re-
main the same, and cannot well be altered, at least
for any considerable time, by any such revolu-
tions ••"

• Wealth of Nations, book i. chap. 10.

16 ON VALUE. [chap, L

SECTION III.

Not only the labour applied immediately to commodities affect
their valucy but the labour also which is bestowed on the
implements^ tools^ aiid buildings^ with which such labaw*
is assisted.

Even in that early state to which Adam Smith
refers, some capital, though possibly ipade and ac-
cumulated by the hunter himself, would be neces-
sary to enable him to kill his game. Without some
weapon, neither the beaver nor the deer could be
destroyed, and therefore the value of tiiese ani-
mals would be regulated, not solely by the time
and labour necessary to their destruction, but also
by the time and labour necessary for providing the
hunter's capital, the weapon, by the aid of which
their destruction was effected.

Suppose the weapon necessary to kill the beaver,
was constructed with much more labour than that
necessary to kill the deer, on account of the greater
difficulty of approaching near to the former animal,
and the consequent necessity of its being more
true to its mark ; one beaver would naturally be of
more value than two deer, and precisely for this
reason, that more labour would, on the whole, be
necessary to its destruction. Or suppose that the
same quantity of labour was necessary to make
both weapons, but that they were of very un-

•SECT. III.3 <>N VALUE. 'I7

equal durability; of the durable implement only
a small portion of its value would be transferred
to the commodity, a much greater portion of the
value of the less durable implement would be re-
alized in the commodity which it contributed to
produce.

All the implements necessary to kill the beaver
and deer might belong to one class of men, and
the labour employed in their destruction might be
furnished by another class ; still, thdr comparative
prices would be in proportion to the actual labour
bestowed, both on the formation of the capital,
and on the destruction of the animals. Under di£*
ferent circumstances of plenty or scarcity of ca-
pital, as compared with labour, under different cir«
cumstances of plenty or scarcity of the food and
necessaries essential to the support of men, those
who furnished an equal value of capital for either
one employment or for the other, might have a
half, a fourth, or an eighth of the produce ob-
tained, the remainder being paid as wages to those
who furnished the labour ; yet this division could
not aflfect the relative value of these commodities»
since whether the profits of capital were greater or
less, whether they were 50, 20, or 10 per cent, or
whether the wages of laboiur were high or low^
they would operate equally on both employments.

If we suppose the occupations of the society
•extended, Uiat some provide canoes and tackle

18 ON VALUE. []CHAP, U

necessary for fishing, others the seed and rude
machinery first used in agriculture, stiU the same
principle would hold true, that the exchangeable
value of the commodities produced would be in
proportion to the labour bestowed on their pro-
duction ; not on their immediate production only,
but on all those implements or machines required
to give efifect to the particular labour to which
they were applied.

If we look to a state of society in which greater
improvements have been made, and in which arts
and commerce flourish, we shall still find that
commodities vary in value conformably with this
principle : in estimating the exchangeable value
of stockings, for example, we shall find that their
value, comparatively' with other things, depends
on the total quantity of labour necessary to manu-
facture them, and bring them to market. First,
there is the labour necessary to cultivate the land
^ * y / on which the raw cotton is grown ; secondly, the
labour of conve3dng the cotton to the coimtry
where the stockings are to be manufactured,
which includes a portion of the labour bestowed
in building the ship in which it is conveyed, and
which is charged in the freight of the gopds;
thirdly, the labour of the spinner and weaver j
fourthly, a portion of the labour of the engineer,
smith, and carpenter, who erected the buildings
and machinery, by the help of which they are
made; fifthly, the labour of the retail dealer, and

tv^

•V* ^

SECT. III.] ON VALUE. 19

of many others, whom it is unnecessary further to
particularize. The aggregate sum of these various
kinds of labour, determines the quantity of other
things for which these stockings will exchange^
while the same consideration of the various quan-
tities of labour which have been bestowed on
those other things, will equally govern the portion
of them which will be given for the stockings.

To convince ourselves that this is the real foun«»
dation of exchangeable value, let us suppose any
improvement to be made in the means of abridg-
ing labour in any one of the various processes
through which the raw cotton must pass, before
the manufactured stockings come to the market,
to be exchanged for other things ; and observe the
effects which will follow. If fewer men were
required to cultivate the raw cotton, or if fearer
sailors were employed in navigating, or shipwrights
in constructing the ship, in which it was conveyed
to us; if fewer hands were employed in raising the
buildings and machinery, or if these, when raised,
were rendered more efficient, the stockings would
inevitably fall in value, and consequently com-
mand less of other things. They would fall, be-
cause a less quantity of labour was necessary to
their production, and would therefore exchange
for a smaller quantity of those things in which no
such abridgment of labour had been made.

Economy in the use of labour never faUs to re-

c 2

// •'

f-'^r

^0 ON VALUE. [chap. I.

duce the relative value of a commodity, whether
the saving be in the labour necessary to the manu-
facture of the commodity itself, or in that neces-
sary to the formation of the capital, by the aid of
which it is produced. In either case the price of
stockings would fall, whether there were fewer
men employed as bleachers, spinners, and weav-
ers, persons immediately necessary to their manu-
facture j or as sailors, carriers, engineers, and
smiths, persons more indirectly concerned^ In
the one case, the whole saving of labour would
fall on the stockings, because that portion of la-
bour wJEis wholly confined to the stockings; in the
other, a portion only would fall on the stockings,
the remainder being applied to all those other
commodities, to the production of which the build-
ings, machinery, and carriage, were subservient.

Suppose that in the early stages of society, the
bows and arrows of the hunter were of equal va-
lue, and of equal durability, with the canoe and
implements of the fisherman, both being the pro-
duce of the same quantity of labour. Under such
circumstances the value of the deer, the produce
of the hunter's day's labour, would be exactly
equal to the value of the fish, the produce of the
fisherman's day's labour. The comparative value
of the fish and the game, would be entirely regu-
lated by the quantity of labour realized in each;
whatever might be the quantity of production, or
iowever high or low general wages or profits might

SECT. III.3 ON VALUE. 21

be. If for exanlple the canoes and implements of
the fisherman were of the value of 100/. and were
calculated to last for ten years, and he employed
ten men, whose annual labour cost lOOL and who
in one day obtained by their labour twenty salmon :
If the weapons employed by the hunter were also
of 100/. value and calculated to last ten years, and
if he also employed ten men, whose anilual labour
cost lOOL and who in one day procured him ten
deer; then the natural price of a deer would be
two salmon, whether the proportion of the whole
produce bestowed on the men who obtained it,
were large or small. The proportion which might
be paid for wages, is of the utmost importance in
the question of profits; for it must at once be seen,
that profits would be high or low, exactly in pro-
portion as wages were low or high ; but it could
not in the least afiect the relative value of fish and
game, as wages would be high or low at the same
time in both occupations. If the hunter urged
the plea of his paying a large proportion, or the
value of a large proportion of his game for wages,
as an inducement to the fisherman to give him
more fish in exchange for his game, the latter
would state that he was equally afiected by the
same cause; and therefore imder all variations of
wages and profits, under all the efiects of accumu-
lation of capital, as long as they continued by a
day's labour to obtain respectively the same quan-
tity of fish, and the same quantity of game, the

22 ON VALUE. [chap. I.

natural rate of exchange would be one deer for
two salmon.

If with the same quantity of labour a less quan«
tity of fish, or a greater quantity of game were ob-
tained, the value of fish would rise in comparison
with that of game. If, on the contrary, with the
same quantity of labour a less quantity of game, or
a greater quantity of fish was obtained, game
would rise in comparison with fish.

If there were any other commodity which was
^^' * invariable in its value, we should be able to ascer-
tain, by comparing the value of fish and game with
this commodity, how much of the variation was to
be attributed to a cause which affected the value
of fish, and how much to a cause which afiected
the value of game.

Suppose money to be that commodity. If a
salmon were worth 1/. and a deer 2/. one deer
would be worth two salmon. But a deer might
become of the value of three salmon, for more
labour might be required to obtain the deer, or
less to get the salmon, or both these causes might
operate at the same time. If we had this invari-
able standard, we might easily ascertain in what
degree either of these causes operated. If salmon
continued to sell for 1/. whilst deer rose to 3/. we
might conclude that more labour was required to

^ /;:':, /;r., ^. ^, (am.. '' r. • - - ^ :^^^^

» V /

/^.

8£CT. III.] ON VALUE. S3

obtain the deer. If deer continued at the same
price of S/1 and salmon sold for 13^. 4k^ we might
then be sure that less labour was required to ob^*
tain the salmon; and if deer rose to 2/. 10^. and
salmon fell to 16^. 8d. we should be convinced that
both causes had operated in producing the altera^
tion of the relative value of these commodities.

No alteration in the wages of labour could pro-
duce any alteration in the relative value of these
commodities ; for suppose them to rise, no greater
quantity of labour would be required in any of
these occupations, but it would be paid for at a , '
higher price, and the same reasons which should* -^
make the hunter and fisherman endeavour to raise
the value of their game and fish, would cause the
owner of the mine to raise the value of his gold. ' '
This inducement acting with the same force on all ^
these three occupations, and the relative situation
of those engaged in them being the same before
and after the rise of wages, the relative value of
game, fish, and gold, would continue unaltered.
Wages might rise twenty per cent., and profits
consequently fall in a greater or less proportion,
without occasioning the least alteration in the rehu
live value of these commodities.

Now suppose, that with the same labour and fixed
capital, more fish could be produced, but no more
gold or game, the relative value of fish would fall
in comparison with gol4 ^r game. I(n instead of .

/i (

M ON VALUE. [chap. I.^ .

.* ; / '^'Wenty salmon, twenty-five were the produce of one j

.. . * clay's labour, the price of a salmon would be six-
, . . 1^ teen shillings instead of a pound, and two salmon *

7) and a half, instead of two salmon, would be given
. ,^ in exchange for one deer, but the price of deer
would continue at 2L as before. In the same man-
ner, if fewer fish could be obtained with the same
capital and labour, fish would rise in comparative
value. Fish then would rise or fall in exchangeable
value, only because more or less labour was re-
quired to obtain a given quantity j and it never could
rise or fall beyond the proportion of the increased
or diminished quantity of labour required.

If we had then an invariable standard, by which
we could measure the variation in other commodi-
ties, we should find that the utmost limit to which
they could permanently rise, if produced under the
circumstances supposed, was proportioned to the
additional quantity of labour required for their pro-
duction; and that unless more labour were re-
quired for their production, they could not rise in
any degree whatever. A rise of wages would not
raise them in money value, nor relatively to any
other commodities, the production of which re-
quired no additional quantity of labour, which em-
ployed the same proportion of fixed and circulating
capital, and fixed capital of the same durability.
If more or less labour were required in the produc-
tion of the other commodity, we have already stated
that this will immediately occasion an alteration in

SfiCT. TV.2 ON VALUE. 2^

its relative value, but such alteration is owing to
the altered quantity of requisite labour, and not to
the rise of wages.

SECTION IV.

4 •

The principle that the quantity of labour bestowed on thepro^
duction qfcommodities regulates their relative vatue, con-
siderabhf modified by the employment of machinery and
other Jl^xed and durable capital.

In the former section we have supposed the imple-
ments and weapons necessary to kill the deer and
salmon, to be equally durable, and to be the result
of the same quantity of labour, and we have seen
that the variations in the relative value of deer and
salmon depended solely on the varying quantities
of labour necessary to obtain them, — but in every
state of society, the tools, implements, buildings,
and machinery employed in different trades may be
of various degrees of durability, and may require
different portions of labour to produce them. The
proportions, too, in which the capital that is to sup-
port labour, and the capital that is invested in tools,
machinery and buildings, may be variously com-
bined. This difference in the degree of durabiUty
of fixed capital, and this variety in the proportions
in which the two sorts of capital may be combined,
introduce another cause, besides the greater or less
quantity of labour necessary to pxoduce commodi-

26 ON VALUE. [chap. I*

ties, for the variations in their relative value — this
cause is the rise or fall in the value of labour.

The food and clothing consumed by the la-
bourer, the buildings in which he works, the im-
plements with which his labour is assisted, are all
of a perishable nature. There is however a vast
difference in the time for which these different
capitals will endure: a steam-engine will last
longer than a ship, a ship than the clothing of the
labourer, and the clothing of the labourer longer
than the food which he consumes.

According as capital is rapidly perishable, and
requires to be frequently reproduced, or is of slow
consumption, it is classed under the heads of cir-
culating, or of fixed capital*. A brewer, whose
buildings and machinery are valuable and durable,
is said to employ a large portion of fixed capital :
on the contrary, a shoemaker, whose capital is
chiefly employed in the pajonent of wages, which
^e expended on food and clothing, commodities
more perishable than buildings and machinery, is
said to employ a large proportion of his capital as
circulating capital.

It is also to be observed that the circulating
capital may circulate, or be returned to its em-

^ A division not essential, and in which the line of demarca-
tion cannot be accurately drawn.

SECT. IV.] ON VALUE. 27

ployer, in very unequal times. The wheat bought
by a farmer to sow is comparatively a fixed capital
to the wheat purchased by a baker to make into
loaves. One leaves it in the ground, and can ob-
tain no return for a year; the other can get it
ground into flour, sell it as bread to his customers,
and have his capital free to renew the same, or
commence any other employment in a week.

Two trades then may employ the same amount of
capital ; but it may be very differently divided with
respect to the portion which is fixed, and that which
is circulating.

In one trade very little capital may be employed
as circulating capital, that is to say in the support
of labour — it may be principally invested in ma-
chinery, implements, buildings, &c. capital of a com-
paratively fixed and durable character. In another
trade the same amount of capital may be used, but
it may be chiefly employed in the support of labour,
and very little may be invested in implements, ma-
chines, and buildings. A rise in the wages of la-
bour cannot fail to afiect unequally, commodities
produced under such different circmnstances.

Again two manufacturers may employ the same
amount of fixed, and the same amount of circulat-
ing capital ; but the durability of their fixed capitals
may be very unequal. One may have steam-engines

28 ON VALUE. [^CHAP. I-

of the value of 10,000/., the other, ships of the
same value.

If men employed no machinery in production but
labour only, and were all the same length of time
before they brought their commodities to market,
the exchangeable value of their goods would be
precisely in proportion to the quantity of labour
employed.

If they employed fixed capital of the same value
and of the same durability, then, too, the value of
the commodities produced would be the same,
and they would vary with the greater or less
quantity of labour employed on their production.

But although commodities produced under
similar circumstances, would not vary with re-
spect to each other, from any cause but an ad-
dition or diminution of the quantity of labour
necessary to produce one or other of them, yet com-
pared with others not produced with the same pro-
portionate quantity of fixed capital, they would vary
firom the other cause also which I have before men-
tioned, namely, a rise in the value of labour, al-
though neither more nor less labour were employed
in the production of either of them. Barley and oats
would continue to bear the same relation to each other
under any variation of w^es. Cotton goods and
cloth would do the same, if they also were produced

SECT. IV.'] ON VALUE. 29

under circumstances precisely similar to each other,
but yet with a rise or fall of wages, barley might be
more or less valuable compared with cotton goods,
and oats compared with cloth.

Suppose two men employ one hundred men each
for a year in the construction of two machines, and
another man employs the same number of men in
cultivating com, each of the machines at the end
of the year will be of the same value as the com,
for they will each be produced by the same quan-
tity of labour. Suppose one of the owners of one
of the machines to employ it, with the assistance
of one hundred men, the following year in making
doth, and the owner of the other machine to em-
ploy his also, with the assistance likewise of one
hundred men, in making cotton goods, while the
farmer continues to employ one hundred men as
before in the cultivation of com. Dining the second
year they will all have employed the same quantity
of labour, but the goods and machine together of
the clothier, and also of the cotton manufacturer,
wiU be the result of the labour of two hundred men,
employed for a year j or, rather, of the laboiu* of one
hundred men for two years ; whereas the com wfll
be produced by the labour of one hundred men for
one year, consequently if the com be of the value
of 500/. the machine and cloth of the clothier to-
gether, ought to be of the value of 1000/. and the
machine and cotton goods of the cotton manufac-
turer, ought to be also of twice the value of the com.

30 ON VALUE, [chap. I.

But they will be of more than twice the value of the
com, for the profit on the clothier's and cotton ma-
nufacturer's capital for the first year has been added
to their capitals, whUe that of the fanner has been
expended and enjoyed. On account then of the
difierent degrees of diu*ability of their capitals, or,
which is the same thing, on account of the time
which must elapse before one set of commodities
can be brought to market, they will be valuable,
not exactly in proportion to the quantity of labour
bestowed on them, — they will not be as two to one,
but something more, to compensate for the greater
length of time which must elapse before the most
valuable can be brought to market.

Suppose that for the labour of each workman 50/.
per annum were paid, or that 5000/. capital were
employed and profits were 10 per cent., the value
of each of the machines as well as of the com, at the
end of the first year, would be 5,500/. The second
year the manufacturers and farmer will again em-
ploy 5000L each in the support of labour, and will
therefore again sell their goods for 5,500/., but the
men using the machines, to be on a par with the
farmer, must not only obtain 5,500/., for the equal
capitals of 5000L employed on labour, but they
must obtain a further sum of 550/. j for the profit on
5,500/. which they have invested in machinery, and
consequenty their goods must sell for 6,050/. Here
then are capitalists employing precisely the same
quantity of labour annually on the production of

SECT, IV.] ON VALUE. 31

their commodities* and yet the goods they produce
differ in vahie on accowit of the different quantities
of fixed capital, or accumulated labour, employed
by each respectively. The cloth and cotton goods
are of the same value, because they are the produce
of equal quantities of labour, and equal quantities
of fixed capital ; but com is not of the same value
as these commodities, because it is produced, as far
as regards fixed capital, under different circum-
stances.

But how will their relative value be affected by
a rise in the value of labour ? It is evident that the
relative values of cloth and cotton goods will under-
go no change, for whataffects one must equally affect
the other, under the circumstances supposed: neither
will the relative values of wheat and barley undergo
any change, for they are produced under the same
drcumAances as far as fixed and circulating capital
are concerned ; but the relative value of com to
cloth, or to cotton goods, must be altered by a rise
of labour.

There can be no rise in the value of labour with-
out a fall of profits. If the com is to be divided
between the farmer and the labourer, the larger
the proportion that is given to the latter, the less
will remain for the former. So if cloth or cotton
goods be divided between the workman and his
employer, the larger the proportion given to the

former, the less remains for the latter. Suppose

32 ON VALUE, [chap. 1.

then, that owing to a rise of wages, profits fall
from 10 to 9 per cent., instead of adding 550L to
the common price of their goods (to 5,5001} for
the profits on their fixed capital, the manufacturers
would add only 9 per cent, on that sum, or 495/.,
consequently the price would be 5,995/. instead of
6,050/. As the com would continue to sell for
5,500/., the manufactured goods in which more
fixed capital was employed, would fall relatively to
corn or to any other goods in which a less portion
of fixed capital entered. The degree of alteration
in the relative value of goods, on account of a rise
or fall of labour, would depend on the proportion
which the fixed capital bore to the whole capital
employed. All commodities which are produced
by very valuable machinery, or in very valuable
buildings, or which require a great length of time
before they can be brought to market, would fall
in relative value, while all those which were chiefly
produced by labour, or which would be speedily
brought to market would rise in relative value.

The reader, however, should remark, that this
cause of the variation of commodities is compara-
tively slight in its efiects. With such a rise of
wages as should occasion a fall of one per cent, in
profits, goods produced under the circumstances
I have supposed, vary in relative value only one
per cent. ; they fall with so great a fall of profits
from 6,050/. to 5,995/1 The greatest effects which
could be produced on the relative prices of these

SECT. IV.] ON VALUE. $3

•

goods from a rise of wages, could not exceed
6 or 7 per cent ; for profits could not, probably,
under any circiunstances, admit of a greater
general and permanent depression than to that
amount.

Not so with the other great cause of the varia-
tion in the value of commodities, namely, the in-
crease or diminution in the quantity of labour
necessary to produce them. If to produce the
com, eighty, instead of one hundred men, should
be required, the value of the com would fall SO
per cent, or from 5,500/. to 4,400/. If to produce
the doth, the labour of eighty instead of one hun-
dred men would suffice, cloth would fall from
6,0501. to 4,950/1 An alteration in the permanent
rate of profits, to any great amount, is the effect of
causes which do not operate but in the course of
years; whereas alterations in the quantity of la-
bour necessary to produce commodities, are of
daily occurrence. Every improvement in ma-
chinery, in tools, in buildings, in raising the raw
material, saves labour, and enables us to produce
the commodity to which the improvement is ap-
plied with more facility, and consequently its value
alters. In estimating, then, the causes of the varia-
tions in the value of commodities, although it would
be wrong wholly to omit the consideration of the
efiect produced by a rise or fall of labour, it would
be equally incorrect to attach much importance to
it; and consequently, in the subsequent part of

34 ON VALUE* £CHAP. I.

this work, though I shall occasionally refer to this
cause of variation, I shall consider all the great
variations which take place in the relative value
of commodities to be produced by tlie greater or
less quantity of labour which may be required
from time to time to produce them.

It is hardly necessary to say, that commodities
which have the same quantity of labour bestowed
on their production, will differ in exchangeable
value, if they cannot be brought to market in the
same time.

Suppose I employ twenty men at an expense of
1000/. for a year in the production of a commo-
dity, and at the end of the year I employ twenty
men again for another year, at a further expense
of 10002. in finishing or perfecting the same com-
modity, and that I bring it to market at the end
of two years, if profits be 10 per cent., my commo-
dity must sell for 2,310^; for I have employed
1000/. capital for one year, and 2,100/. capital for
one year more. Another man employs precisely
the same quantity of labour, but he employs it all
in the first year; he employs forty men at an ex-
pense of 2000/., and at the end of the first year
he sells it with 10 per cent, profit, or for 2,SOO{1
Here then are two commodities having pre-
cisely the same quantity of labour bestowed on
them, o^e of which sells for 2,310/^ — ^the other for
2,200/.

SECT. IV.3 ON VALUE. $5

This case appears to difier from the last, but is,
in fact, the same. In both cases the superior
price of one commodity is owing to the greater
length of time which must elapse before it can be
brought to market. In the former case the ma*
chinery and cloth were more than double the value
of the com, although only double the quantity of
labour was bestowed on them. In the second
case, one commodity is more valuable than the
other, although no more labour was employed on
its production. The difierence in value arises in
both cases from the profits being accumulated as
capital, and is only a just compensation for the
time that the profits were withheld.

It appears then that the division of capital into
different proportions of fixed and circulating ca-
pital, employed in different trades, introduces a
considerable modiiScation to the rule, which is of
universal application when labour is almost exclu-
sively employed in production ; namely, that com-
modities never vary in value, unless a greater or
less quantity of labour be bestowed on their pro-
duction, it being shown in this section that without
any variation in the quantity of labour, the rise of
its value merely will occasion a fall in the ex-
changeable value of those goods, in the production
of which fixed capital is employed; the larger the
amount of fixed capital, the greater will be the

S6 ON VALUE. [chap. I.

SECTION V-

T^e principle that value does not vary with the rise or fatt
of wages^ modified also by the unequal durability of
capital^ and by the unequal rapidity with which it is
returned to its employer.

In the last section we have supposed that of two
equal capitals in two different occupations, the
proportions of fixed and circulating capitals were
unequal, now let us suppose them to be in the
same proportion but of unequal durability. In
proportion as fixed capital is less durable, it ap-
proaches to the nature of circulating capital. It
will be consumed and its value reproduced in a
shorter time, in order to preserve the capital of the
manufacturer. We have just seen, that in pro-
portion as fixed capital preponderates in a manu-
facture, when wages rise, the value of commodities
produced in that manufacture, is relatively lower
than that of commodities produced in manufac-
tures where circulating capital preponderates. In
proportion to the less durability of fixed capital,
and its approach to the nature of circulating
capital, the same efiect will be produced by the
same cause.

If fixed capital be not of a durable nature, it
will require a great quantity of labour annually to

SECT, v.] ON VALUE. 37

keep it in its original state of efficiency; but the
labour so bestowed may be considered as really
expended on the commodity manufactured, which
must bear a value in proportion to such labour.
If I had a machine worth 20,000/. which with very
litde labour was efficient to the production of
commodities, and if the wear and tear of such ma-
chine were of trifling amount, and the general rate
of profit 10 per cent., I should not require much
more than 2000/. to be added to the price of the
goods, on account of the employment of my ma-
chine; but if the wear and tear of the machine
were great, if the quantity of labour requisite to
keep it in an efficient state were that of fifty men
annually, I should require an additional price for
my goods, equal to that which would be obtained
by any other manufacturer who employed fifty
men in the production of other goods, and who
used no machineiy at all.

But a rise in the wages of labour would not equally
affect commodities produced with machineiy quick-
ly consumed, and commodities produced with
machineiy slowly consumed. In the production
of the one, a great deal of labour would be conti-
nually transferred to the commodity produced— in
the other very littie would be so transferred.
Every rise of wages, therefore, or, which is the
same thing, every fall of profits, would lower the
relative value of those commodities which were
produced with a capital of a durable nature, and
would proportionaUy elevate tiiose which were pro-

38 ON VALUE. [chap. !♦

duced with capital more perishable. A faU of
wages would have precisely the contrary effect.

I have already said that fixed capital is of various
degrees of durability — suppose now a machine
which could in any particular trade . be employed
to do the work of one hundred men for a year, and
that it would last only for one year. Suppose too,
the machine to cost 5000/., and the wages annually
paid to one hundred men to be 5000/., it is evident
that it would be a matter of indifference to the ma-
nufacturer whether he bought the machine or em-
ployed the men. But suppose labour to rise, and
consequently the wages of one hundred men for a
year to amount to 5,500/., it is obvious that the ma^
nufacturer would now no longer hesitate, it would
be for his interest to buy the machine and get his
work done for 5000A But will not the machine
rise in price, will not that also be worth 5,500/. in
consequence of the rise of labour ? It would rise in
price if there were no stock employed on its con-
struction, and no profits to be paid to the maker of
it. If for example, the machine were the produce
of the labour of one hundred men, working one year
upon it with wages of 50/. each, and its price were
consequently 5000/. ; should those wages rise to 55 A,
its price would be 5,500/., but this cannot be the case;
less than one hundred men are employed or it could
not be sold for 5000/., for out of the 5000/, must
be paid the profits of stock which employed the men.
Suppdge then t|;iarj)iJly eighty-five men were, enj-
ployed at au expense of 50k, each, or 4,250i/»- p^r

SECT. V.3 ON VALUE. 39

annum, and that the 750L which the sale of the
machine would produce over and above the wagep
advanced to the men, constituted the profits of the
engineer's stock. When wages rose 10 per cent,
he would be obliged to employ an additional ca-
pital of 4s^L and would therefore employ 4,675/. in-
stead of 4,250/., on which capital he would only get
a profit of 325L if he continued to sell his machine
for 5000/. ; but this is precisely the case of all ma-
nufacturers and capitalists ; the rise of wages afiects
them all. If therefore the maker of the machine
should raise the price of it in consequence of a rise
of wages, an unusual quantity of capital would be
employed in the construction of such machines,
till their price afforded only the common rate of
profits*. We see then that machines would not " L p,
rise in price, in consequence of a rise of wages. ^ *

The manufacturer, however, who in a general rise
of wages, can have recourse to a machine which
shall not increase the charge of production on his

* We here see why it is that old countries are constantly im-
pelled to employ machinery, and new countries to employ labour.
With ever)' difficulty of providing for the maintenance of men,
labour necessarily rises, and with every rise in the price of la- \
hour, new temptations are offered to the use of machinery. This
difficulty of providing for the maintenance of men is in constant
operation in old countries, in new ones a very great increase in
the population may take place without the least rise in the wages ' -
of labour. It may be as easy to provide for the 7 th, 8th, and
dth million of men as for the 2d, 3d, and 4th. .

-- -• ' «^ './ *X ^

//f^n-^'-i'-'-- ::■'..;:/-. ■ /

/ y ^ ' '*

A. '•

a * 4. V

40 ON VALUE. [chap. I.

commodity, would enjoy peculiar advantages if he
could continue to charge the same price for his
goods ; but he, as we have already seen, would be
obliged to lower the price of his commodities, or
capital would flow to his trade till his profits had
sunk to the general level. Thus then is the public
benefited by machinery: these mute agents are
always the produce of much less labour than that
which they displace, even when they are of the same
money value. Through their influence, an increase
in the price of provisions which raises wages will
affect fewer persons ; it will reach, as in the above
instance, eighty-five men instead of a hundred, and
the saving which is the consequence, shows itself in
the reduced price of the commodity manufactured.
Neither machines, nor the commodities made by
them, rise in real value, but aU commodities made
by machines fall, and fall in proportion to their
durability.

It will be seen, then, that in the early stages of
society, before much machinery or durable capital
is used, the commodities produced by equal capitals
will be nearly of equal value, and will rise or fall
only relatively to each other on account of more or
less labour being required for their production ; but
after the introduction of these expensive and du-
rable instruments, the commodities produced by the
emplo3anent of equal capitals will be of very un-
equal value ; and although they will still be liable

SECT, VI.3 ON VALUE, 41

to rise or fall relatively to each other, as more or
less labour becomes necessary to their production,
they will be subject to another, though a min6r va-
riation, also, from the rise or fall of wages and profits.
Since goods which sell for 5000/. may be the pro-
duce of a capital equal in amount to that from which
are produced other goods which sell for 10,000/., the
profits on their manufacture will be the same ; but
those profits would be unequal, if the prices of the
goods did not vary with a rise or fall in the rate of
profits.

It appears, too, that in proportion to the durabi-
lity of capital employed in any kind of production,
the relative prices of those commodities on which
such durable capital is employed, will vary inversely
as wages ; they will fall as wages rise, and rise as
wages fall ; and, on the contrary, those which are
produced chiefly by labour with less fixed capital,
or with fixed capital of a less durable character
than the medium in which price is estimated, will
rise as wages rise, and fall as wages fall.

SECTION VI.

On an invariable measure of value.

When commodities varied in relative value, it
would be desirable to have the means of ascertain-
ing which of them fell and which rose in real value,
and this could be effected only by comparing them

42 ON VALUE. [chap. I.

one after another with some invariable standard
measure of value, which should itself be subject to
none of the fluctuations to which other commodi-
ties are exposed. Of such a measure it is impos-
sible to be possessed, because there is no commo-
dity which is not itself exposed to the same vari-
ations as the things, the value of which is to be
iviW ascertained j that is, there is none which is not
]^ subject to require more or less labour for its pro-
/ / duction. But if this cause of variation in the value

/ - '^ * -

^c^^ t.^ X 'qj^ a medium could be removed — if it were possible
.* Cif^'^ "^ ^^^ ^ *^^ production of our money for instance,

the same quantity of labour should at all times be
/ required, still it would not be a perfect standard or
invariable measure of value, because, as I have
already endeavoured to explain, it would be sub-
ject to relative variations from a rise or fall of wages,
on account of the different proportions of fixed ca-
pital which might be necessary to produce it, and to
produce those other commodities whose alteration
• -.♦ ^ of value we wished to ascertain. It might be sub-
'*' "-^ ject to variations too, from the, same cause, on ac-
count of the different degrees of durability of the
fixed capital employed on it, and the commodities
to be compared with it— or the time necessary to
bring the one to market, might be longer or shorter
than the time necessary to bring the other com-
modities to market, the variations of which were to
be determined ; all which circumstances disqualify
any commodity that can be thought of from being
a perfectly accurate measure of value.

»• .*^

SECT. VI.3 ON VALUE. 43

If, for example, we were to fix on gcUd as a
standard, it is evident that it is but a commodity ob*
tained under the same contingencies as evei^ other
commodity, and requiring labour and fixed capital
to produce it. Like every other commodity, im»
provements in the saving of labour might be ap-
plied to its production, and consequently it might
&11 in relative value to other, things merely on ac-
count of the greater &cility of producing it.

• ..A

If we suppose this cause of variation to be re- ^

moved, and the same quantity of labour to be al- . '
ways required to obtain the same quantity of gold, ^ ^

still gold would not be a perfect measure of value, \ ]
by which we could accurately ascertain the varia*
tions in all other things, because it would not be
produced with precisely the same combinations of
fixed and circulating capital as all other things j
nor with fixed capital of the same diu'ability ; nor
would it require precisely the same length of time, /

bef<Nre it could be brought to market. It would be )% ^^ • ^
a perfect measure of value for all things produced*^^^*^ *•'
under the same circumstances precisely as itself, but
for no others. If, for example, it were produced
under the same circumstances as we have supposed
necessary to produce cloth and cotton goods, it
would be a perfect measure of value for those
things, but not so for com, for coals, and other
commodities produced with either a less or a
greater prc^ortion of fixed capital, because, as we
have shown, every alteration in the permanent rate

44 ON VALUE. [chap. I.

of profits would have some effect on the relative
value of all these goods, independently of any al-
teration in the quantity of labour employed on
their production. If gold were produced under
the same circumstances as com, even if they never
changed, it would not, for the same reasons, be at
all times a perfect measure of the value of cloth
and cotton goods. Neither gold then, nor any
other commodity, can ever be a perfect measure of
value for all things ; but I have already remarked,
that the effect on the relative prices of things, from a
variation in profits, is comparatively slight ; that by
far the most important effects are produced by the
varying quantities of labour required for production ;
and therefore, if we suppose this important cause
of variation removed from the production of gold^
we shall probably possess as near an approxima-
tion to a standard measiue of value as can be the-
oretically conceived. May not gold be considered
as a commodity produced with such proportions of
the two kinds of capital as approach nearest to
the average quantity employed in the production
of most commodities ? May not these proportions
be so nearly equally distant from the two extremes,
the one where little fixed capital is used, the other
where little labour is employed, as to form a just
mean between them ?

If, then, I may suppose myself to be possessed
of a standard so nearly approaching to an invari-
able one, the advantage is, that I shall be enabled

SECT. VI.J ON VALC7E. 4fS

to speak of the variations of other things, without
embarrassing m3rself on every occasion with the
consideration of the possible alteration in the
value of the medium in which price and value are
estimated.

To £iciUtate» then, the object of this enquiry,
although I iuUy allow that money made of gold is
subject to most of the variations of other things,
I shall suppose it to be invariable, and therefore
all alterations in price to be occasioned by some
alteration in the value of the commodity of which
I may be speaking.

Before I quit this subject, it may be proper to
observe, that Adam Smith, and all the writers who
have followed him, have, without one exception
that I know of, maintained that a rise in the
price of labour would be uniformly followed by a
rise in the price of all commodities. I hope I have
succeeded in showing, that there are no grounds
for such an opinion, and that only those commodi-
ties would rise which had less fixed capital employed
upon them than the medium in which price was
estimated, and that all those which had more,
would positively fall in price when wages rose.
On the contrary, if wages fell, those commodities
only would &11, which had a less proportion of
fixed capital employed on them, than the medium
in which price was estimated; all those which had
morcy would positively rise in price.

46 ON VALUE* [chap. I.

It is necessary for me also to remark, that I
have not said, because one commodity has so much
lat>our bestowed upon it as will cost 1000^ and
another so much as will cost SOOOL that therefore
one would be of the value of 1000/. and the other
of the value of 2000/. but I have said that their
value will be to each other as two to one, and that
in those proportions they will be exchanged. It is
of no importance to the truth of this doctrine^
whether one of these commodities sells for 1,1002.
and the other for 2,200/., or one for 1,500/L and the
other for 3000/. ; into that question I do not at
present enquire ; I affirm only, that thdr relative
values will be governed by the relative quantities
of labour bestowed on their production *•

* Mr. Malthiu remarks on this doctrine, '^ We have the power
indeed, arbitrarily, to call the labour which has been employed
upon a commodity its real value, but in so doing, we use words
in a different sense from that in which they are customarily
used ; we confound at once the very important distinctioii be*
tween cost and value ; and render it almost impossible to
.explain with clearness, the main stimulus to the production of
wealth, which in fact depends upon this distinction."

Mr. Malthus appears to think that it is a part of my doe-
trine, that the cost and value of a thing should be the same ^—
it is, if he means by cost, " cost of production" inchiding
profits. In the above passage, this is what he does not meaOf
and therefore he has not clearly understood me.

SECT. VII.] ON VALUE. 47

SECTION VIL

Different effects from the alteration in the value of numey^
ike medium in which price is always expressed^ or
Jrom the alteration in the value of the commodities
which money purchases.

Although I shall, as I have akeady explained^
have occasion to consider money as invariable in
value, for the purpose of more distinctly pointing
out the causes of relative variations in the value of
other things, it may be useful to notice the diffe-
rent effects which will follow from the prices of
goods being altered by the causes to which I have
already adverted, namely, the different quantities
of labour required to produce them, and their
being altered by a variation in the value of money
itself.

Money, being a variable commodity, the rise
of money - wages will be frequently occasioned
by a fall in the value of money. A rise of wages
from this cause will, indeed, be invariably ac-
companied by a rise in the price of commo-
^ties; but in such cases, it will be found that
labour and all commodities have not varied in re-
gard to each other, and that the variation has been
confined to money.

Mon^, from its being a commodity obtained

48 ON VALUE. [chap. I.

from a foreign country, from its being the general
medium][of exchange between all civilized coun-
tries, and from its being also distributed among
those countries in proportions which are ever
changing with every improvement in commerce
and machinery, and with every increasing diiOSculty
of obtaining food and necessaries for an increasing
population, is subject to incessant variations. In
stating the principles which regulate exchangeable
value and price, we should carefully distinguish
between those variations which belong to the com-
modity itself, and those which are occasioned by
a variation in the medium in which value is esti-
mated, or price expressed.

A rise in wages, from an alteration in the value
of money, produces a general efiect on price, and
for that reason it produces no real efiect whatever
on profits. On the contrary, a rise of wages, from
the circumstance of the labourer being more libe-
rally f ewarded, or from a difficulty of procuring
the necessaries on which wages are expended, does
not, except in some instances, produce the efiect
of raising price, but has a great efiect in lowering
profits. In the one case, no greater proportion of
the annual labour of the country is devoted to the
support of the laboiu^ers; in the other case, a
larger portion is so devoted.

It is according to the division of the whole pro-

SECT. VII.] ON VALUK. 49

duce of the land of any particular farm, between
the three classes of landlord, capitalist, and la-
bourer, that we are to judge of the rise or fall of
rent, profit, and wages, and not according to the
value at which that produce may be estimated in a
medium which is confessedly variable.

It is not by the absolute quantity of produce ob-
tained by either class, that we can correctly
judge of the rate of profit, rent, and wages, but
by the quantity of labour required to obtain that
produce. By improvements in machinery and
agriculture, the whole produce may be doubled ;
but if wages, rent, and profit be also doubled,
these three will bear the same proportions to one
another as before, and neither could be said to
have relatively varied. But if wages partook not
of the whole of this increase ; if they, instead of
being doubled, were only increased one-half; if
rent, instead of being doubled, were only increased
three-fourths, and the remaining increase went to
profit, it would, I apprehend, be correct for me to
say, that rent and wages had fallen while profits
had risen ; for if we had an invariable standard by
which to measure the value of this produce, we
should find that a less value had fallei^ to the class
of labourers and landlords, and a grater to the
class of capitalists, than had been given before.
We might find, for example, that though the ab-
solute quantity of commodities had been doubled,

50 ON VALUE. [chap. I.

they were the produce of precisely the former
quantity of labour. Of every hundred hats, coate,
and quarters of com produced, if

The labourers had oefore 25
The landlords ... 25
And the capitalists . . 50

100:

And if, after these commodities were double the
quantity, of every 100

The labourers had only . 22
The landlords .... 22
And the capitalists . 56

100:

In that case I should say, that wages and rent had
fallen and profits risen ; though, in consequence of
the abundance of commodities, the quantity paid
to the labourer and landlord would have increased
in the proportion of 25 to 44. Wages are to be
estimated by their real value, viz. by the quantity
of labour and capital employed in producing them,
and not by their nominal value either in coats,
hats, money, or com. Under the circumstances I
have just supposed, commodities would have fallen
to half their former value, and if money had not
varied, to half their former price also. If then in
this medium, which had not varied in value, the

SECT. Vir.] ON VALUE. 51

wages of the labourer shduld be found to have
fallen, it will not the less be a real fall, because
they might furnish him with a greater quantity of
cheap commodities than his former y^Bjges.

The variation in the value of money, however
great, makes no difference in the rate of profits $
for suppose the goods of the manufacturer to rise
from 1000/. to 2000/., or 100 per cent., if his ca-
pital, on which the variations of money have as
much effect as on the value of produce, if his ma-
chinery, buildings, and stock in trade rise also 100
per cent., his rate of profits will be the same, and
he will have the same quantity, and no more, of
the produce of the labour of the country at his
command.

If, with a capital of a given value, he can, by
economy in labour, double the quantity of pro-
duce, and it fall to half its former price, it will
bear the same proportion to the capital that pro-
duced it which it did before^ and consequently
profits will still be at the same rate.

If, at the same time that he doubles the quan-
tity of produce by the employment of the same
capital, the value of money is by any accident
lowered one half, the produce will sell for twice
the money value that it did before ; but the capi-
tal employed to produce it will also be of twice

52 ON VALUE. [chap. I.

its former money value ; and therefore in this case
too, the value of the produce will bear the same
proportion to the value of the capital as it did be-
fore ; and although the produce be doubled, rent,
wages, and profits will only vaiy as the proportions
vary, in which this double produce may be divided
among the three classes that share it

CHAPTER II

ON RENT*

It remains however to be considered, whether the
appropriation of land, and the consequent creation
of rent, will occasion any variation in the relative
value of commodities, independently of the quan-
tity of labour necessary to production. In order
to understand this part of the subject, we must en-
quire into the nature of rent, and the laws by

which its rise or fall is regulated.

Rent is that portion of the produce of the earth,
which is paid to the landlord for the use of the
original and indestructible powers of the soil. It
is often, however, confounded with the interest and
profit of capital, and, in popular language, the term
is applied to whatever is annually paid by a far-
mer to his landlord. If, of two adjoining farms of
the same extent, and of the same natural fertility,
one had all the conveniences of farming buildings,
and, besides, were properly drained and manured,
and advantageously divided by hedges, fences and
walls, while the other had ncme of these advanta-
ges, more remuneration would naturally be paid for
the use of one, than for the use of the other ; yet
in both cases this remimeration would be called
rent. But it is evident, that a portion only of the

54 ON RENT. f CHAP, II.

money annually to be paid for the improved farm,
would be given for the original and indestructible
powers of the soil ; the other portion would be paid
for the use of the capital which had been employ-
ed in ameliorating the quality of the land, and in
erecting such buildings as were necessary to seciire
and preserve the produce. Adam Smith some-
times speaks of rent, in the strict sense to* which
I am desirous of confining it, but more often in the
popular sense, in which the term is usually employ-
ed. He tells us, that the demand for timber, and
its consequent high price, in the more southern
countries of Europe, caused a rent to be paid for
forests in Norway, which could before afford no
rent. Is it not, however, evident, that the person
who paid what he thus calls rent, paid it in considera-
tion of the valuable commodity which was then stand-
ing on the land, and that he actually repaid hunself
with a profit, by the sale of the timber ? If, indeed,
after the timber was removed, any compensation
were paid to the landlord for the use of the land,
for the purpose of growing timber or any other
produce, with a view to future demand, such com-
pensation might justly be called rent, because it
would be paid for the productive powers of the land j
but in the case stated by Adam Smith, the com-
pensation was paid for the liberty of removing and
selling the timber, and not for the liberty of grow-
ing it. He speaks also of the rent of coal mines,
and of stone quarries, to which the same observa-
tion applies— that the compensation given for the

CHAP. 11.3 OX RENT. 65

mine or quarry, is paid for the value of the coal or
stone which can be removed from them, and has
no connection with the original and indestructible
powers of the land. This is a distinction of great
importance, in an enquiry concerning rent and pro-
fits ; for it is found, that the laws which regulate
the progress of rent, are widely different from those
which regulate the progress of profits, and seldom
operate in the same direction. In all improved
countries, that .which is annually paid to the land-
lord, partaking of both characters, rent and profit,
is sometimes kept stationary by the effects of oppo-
sing causes ; at other times advances or. recedes, as
one or the other of these causes preponderates.
In the future pages of this work, then, whenever I
speak of the rent of land, I wish to be understood
as speaking of that compensation, which is paid to
the owner of land for the use of its original and
indestructible powers.

On the first settling of a country, in which there
is an abundance of rich and fertile land, a very small
proportion of which is required to be cultivated for
the support of the actual population, or indeed
can be cultivated with the capital which the popu-
lation can command, there will be no rent ; for no
one would pay for the use of land, when there was
an abundant quantity not yet appropriated, and,
therefore, at the disposal of whosoever might
choose to cultivate it.

56 ON RENT. I^CHAP. II*

, On the common principles of supply and de-
mand, no rent could be paid for such land, for the
reason stated why nothing is given for the use of
air and water, or for any other of the gifts of na-
ture which exist in boundless quantity. With a
given quantity of materials, and with the assistance
of the pressure of the atmosphere, and the elastici-
ty of steam, engines may perform work, and abridge
human labour to a very great extent ; but no charge
is made for the use of these natural aids, because
they are inexhaustible, and at every man's disposal.
In the same manner the brewer, the distiller, tlie
dyer, make incessant use of the air and water for
the production of their commodities ; but as the
supply is boundless, they bear no price*. If all
land had the same properties, if it were unlimited
in quantity, and uniform in quality, no charge could
be made for its use, unless where it possessed pecu-
liar advantages of situation. It is only, then, be-
cause land is not unlimited in quantity and uni-

* '^ The earthi as we have already seen, is not the only agent
of nature which has a productive power ; but it is the only one,
or nearly so, that one set of men take to themselves, to the ex-
clusion of others ; and of which, consequently, they can appro-
priate the benefits. The waters of rivers, and of the sea, by the
power which they have of giving movement to our machines,^
carrying our boats, nourishing our fish, have also a productive
power ; the wind which turns our mills, and even the heat of the
sun, work for us ; but happily no one has yet been able to say,
the ' wind and the sun are mine, and the service which they ren-
der must be paid for/ "— £co«om/e Politique, par J. B* Say, voL
ii. p. 12i.

CHAP. II.] ON RKNT* 57

form in quality, and because in the progress of po-
pulation, land of an inferior quality, or less advan-
tageously situated, is called into cultivation, that
rent is ever paid for the use of it* When in the
progress of society, land of the second degree of
fertility is taken into cultivation, rent immediately
commences on that of the first quality, and the
amoimt of that rent will depend on the difierence
in the quality of these two portions of land.

When land of the third quality is taken into cul-
tivation, rent immediately commences on the second,
and it is regulated as before, by the dijBTerence in
their productive powers. At the same time, the
rent of the first quality wUl rise, for that must al-
ways be above the rent of the second, by the dif-
ference between the produce which they yield with
a given quantity of capital and labour. With every
step in the progress of population, which shall
oblige a country to have recourse to land of a worse
quality, to enable it to raise its supply of food, rent,
on aU the more fertile land, will rise.

Thus suppose land — ^No. 1, 2, S, — ^to yield, with
an equal employment of capital and labour, a net
produce of 100, 90, and 80 quarters of com. In a
new country, where there is an abundance of fer-
tile land compared with the population, and where
therefore it is only necessary to cultivate No. 1,
the whole net produce wiU belong to the cultiva-
tor, and will be the profits of the stock which he ad-
vances. As soon as population had so far increased

58 ON BSKT. [chap. H.

as to make it necessary to cultivate No. 2, from
which ninety quarters only can be obtained after sup-
porting the labourers, rent would commence on No.
1 ; for either there must be two rates of profit on
agricultural capital, or ten quarters, or the value
of ten quarters must be withdrawn from the pro-
duce of No. 1, for some other purpose. Whether
the proprietor of the land, or any other person,
cultivated No. 1, these ten quarters would equally
constitute rent ; for the cultivator of No. 2 would
get the same result with his capital, whether he
cultivated No. 1, paying ten quarters for rent, or
continued to cultivate No. 2, paying no rent. In the
same manner it might be shown that when No. 3
is brought into cultivation, the rent of No. 2 must
be ten quarters, or the value of ten quarters, whilst
the rent of No. 1 would rise to twenty quarters ;
for the cultivator of No. S would have the same
profits whether he paid twenty quarters for the rent
of No. 1, ten quarters for the rent of No. 2, or
cultivated No. 3 free of all rent.

It often, and, indeed, commonly happens, that
before No. 2, 3, 4, or 5, or the inferior lands are
cultivated, capital can be employed more produc-
tively on those lands which are already in cultiva-
tion. It may perhaps be found, that by doubling
the original capital employed on No. 1, though the
produce will not be doubled, will not be increased
by 100 quarters, it may be increased by eighty-five
quarters, and that this quantity exceeds what could

CHAP. II.3 ON KJ&NT. SQ

be obtained by employing the same capital, on
land .No. 3.

In such case^ capital will be preferably employed
on the old land^ and will equally create a rent;
for rent is always the difference between the pro-
duce obtained by the employment of two equal
quantities of capital and labour. If, with a capital
of lOOOiL, a tenant obtain 100 quarters of wheat
from his land, and by the employment of a second
capital of 1000/., he obtain a further return of
eighty-five, his landlord would have the power at
the expiration of his lease, of obliging him to pay
fifteen quarters, or an equivalent value for additio-
nal rent ; for there cannot be two rates of profit.
If he is satisfied with a diminution of fifteen quar-
ters in the return for his second 1000/., it is because
no employment more profitable can be found for it.
The common rate of profit would be in that pro-
portion, and if the original tenant reftised, some
other person would be found willing to give all
which cgiceeded that rate of profit to the owner of
the land from which he derived it.

In this case, as well as in the other, the capita
last employed pays no rent. For the greater pro-
ductive powers of the first 1000/., fifteen quarters
is paid for rent, for the employment of the second
1000/. no rent whatever is paid. If a third 1000/.
be employed on the same land, with a return of
seventy-five quarters, rent will then be paid for the

60 ON RENT. [chap. 11.

second 1000/., and will be equal to the difference
between the produce of these two, or ten quarters;
and at the same time the rent of the first 1000/.
will rise from fifteen to twenty-fi ve quarters j while
the last 1000/. will pay no rent whatever.

If, then, good land existed in a quantity much
more abundant than the production of food for an
increasing population required, or if capital could
be indefinitely employed without a diminished re-
turn on the old land, there could be no rise of rent j
for rent invariably proceeds from the emplojrment
of an additional quantity of labour with a propor-
tionally less return.

The most fertile, and most favorably situated,
land will be first cultivated, and the exchangeable
value of its produce will be adjusted in the same
manner as the exchangeable value of all other com-
modities, by the total quantity of labour necessary
in various forms, from first to last, to produce it,
and bring it to market. When land of ai\ inferior
quality is taken into cultivation, the exchangeable
value of raw produce wiU rise, because more labour
is required to produce it.

The exchangeable value of all commodities,
whether they be manufactured, or the produce of
the mines, or the produce of land, is always regu-
lated, not by the less quantity of labour that will
suffice for their production under circumstances

CHAP.II.]. ON RENT. 6l

highly fiivorable^ and exclusively enjoyed by those
who have peculiar facilities of production ; but by
the greater quantity of labour necessarily bestowed
on their production by those who have no such fa-
cilities ; by those who continue to produce them
under the most unfavorable circumstances ; mean-
ing— by the most unfavorable circumstances, the
most unfavorable .under which the quantity of
produce required, rendei's it necessary to carry on
the production.

Thus, in a charitable institution, where the poor
are set to work with the funds of benefactors, the
general prices of the commodities, which are the
produce of such work, will not be governed by the
peculiar faciUties afforded to these workmen, but
by the common, usual, and natural difficulties,
which every other manufacturer \nll have to en-
counter. The manufacturer enjoying none of these
facilities might indeed be driven altogether from
the market, if the supply afforded by these favored
workmen were equal to all the wants of the com-
munity ; but if he continued the trade, it would be
only on condition that hie should derive from it the
usual and general rate of profits on stock ; and that
could only happen when his commodity sold for a
price proportioned to the quantity of labour be-
stowed on its production*.

* Has not M* Saj forgotten, in the following passage, that
it is the cost of production which ultimately regulates price ?
" The produce of labour employed on the land has this peculiar

62 ON RENT. [chap. IT.

It is true, that on the best land, the satne pro-
duce would still be obtained with jthe same labour
as before, but its value would be enhanced in con-
sequence of the diminished returns obtained by
those who employed fresh labour and stock on the
less fertile land. Notwithstanding, then, that tlie
advantages of fertile over inferior lands are in no
case lost, but only transferred from the cultivator,
or consumer, to the landlord, yet, since more labour
is required on the inferior lands, and since it is from
such land only that we are enabled to fiunish our-
selves with the additional supply of raw produce.

property, that it does not become more dear by becoming more
scarce, because population always diminishes at the same time
that food diminishes^ and cMisequently the quantity of diese pro-
ducts demanded^ diminishes at the same time as the quantity st^
plied. Besides, it ia not observed that com is more dear in those
places where there is plenty of uncultivated land, than in com-
pletely cultivated countries. England and France were much
more imperfectly cultivated in the middle ages than they are now;
they produced much less raw produce: nevertheless from all
that we can judge by a comparison with die value of odier thingi,
com was not sold at a dearer price. If the produce was less, so
was the population ; the weakness of the demand compensated
the feebleness of the supply/' Vol. ii. SS8. M. Say being im-
pressed with the opinion that the price of commodities is regu-
lated by the price of labour, and justly sapposiftg that charitable
institutions of all sorts tend to increase the populatioo beyond
what it otherwise would be, and therefore to lower wages, say«,
*^ I suspect that the cheapness of the goods, which come from
England, is partly caused by the numerous charitable institutions
which exist in that country." vol. ii. 277. This is a consistent
opinion in one who maintains that wages regulate price.

CHAP. 11.] ON R£NT« 63

the comparative value of that produce will continue
permanently above its former level, and make it
exchange for more hats, cloth, shoes, &c. &c. in
the production of which no such additional quan*
tity of labour is required.

The reason then, why raw produce rises in com-
parative value, is because more labour is employed
in the production of the last portion obtained, and
not because a rent is paid to the landlord. The "
value of com is regulated by the quantity of labour
bestowed on its production on that quality of land,
or with that portion of capital, which pays no rent.
Com is not high because a rent is paid, but a rent
is paid because com is high; and it has been
justly observed^ that no reduction would take place
in the price of com, although landlords should
forego the whole of their rent. Such a measure
would only enable some farmers to live like gentle-
men, but would not diminish the quantity of labour
necessary to raise raw produce on the least produc-
tive land in cultivation.

Nothing is more coounon than to hear of the ad-
vantages which the land possesses over every other
source of usefid produce, on account of the surplus
which it yields in the form of rent. Yet when land
is most abundant, when most productive, and most
fertile, it yields no rent j and it is only when its
powers decay, and less is yielded in return for la-
bour, that a share of the original produce of the

64 ON RENT. I^CHAP. II.

more fertile portions is set apart for rent. It is sin-
gular that this quality in the land, which should
have been noticed as an imperfection, compared
with the natural agents by which manufacturers
are assisted, should have been pointed put as con-
stituting its peculiar pre-eminence. If air, water,
the elasticity of steam, and the pressure of the at-
mosphere, were of various qualities ; if they could
be appropriated, and each quality existed only in
moderate abundance, they, as well as the land, would
afibrd a rent,^ as the successive qualities were
brought into use. With every worse quality em-
ployed, the value of the commodities in the manu-
facture of which they were used, would rise, because
equal quantities of labour would be less productive.
Man Would do more by the sweat of his brow, and
nature perform less; and the land would be no
longer pre-eminent for its limited powers.

If the surplus produce which land affords in the
form of rent be an advantage, it is desirable that,
every year, the machinery newly constructed should
be less efficient than the old, as that would undoubt-
edly give a greater exchangeable value to the goods
manufactured, not only by that machinery but by
all the other machinery in the kingdom; and a
rent would be paid to aU those who possessed the
most productive machinery*.

♦ " In agriculture too," says Adam Smith, " nature labours
along witli man ; and though her labour costs no expense, its

CHAP, n.3 OK RBNT. 65

The rise of rent is always the efiect of the increas-
ing wealth of the country, and of the difficulty of

produce has its value, 83 well as that of the most expensive work-
man." The labour of nature is paid, not because she does much,
but because she does little. In proportion as she becomes nig-
gardly in her gifts, she exacts a greater price for her work.
Where she is munificently beneficent, she always works gratis.
** The labouring cattle employed in agriculture, not only occa-
sion, like the workmen in manufactures, the reproduction of a
value equal to their own consumption, or to the capital which em-
ploys them, together with its owner's profits, but of a much
greater value. Over and above the capital of the farmer and all
its profits, they regularly occasion the reproduction of the rent
of the landlord. This rent may be considered as the produce of
those powers of nature, the use of which the landlord lends to
the farmer. It is greater or smaller according to the supposed
extent of those powers, or in other words, according to the sup-
posed natural or improved fertility of the land. It is the work
of nature which remains, after deducting or compensating every
thing which can be regarded as the work of man. It is seldom
less than a fourth, and frequently more than a third of the whole
produce. No equal quantity of productive labour employed in
manufactures, can ever occasion so great a reproduction. In
them nature does nolhing, man does aU; and the reproduction
must always be in proportion to the strength of the agents that
occasion it. The ciHpital employed in agriculture, therefore, not
only pute into motion a greater quantity of productive labour
than any equal capital employed in manufactures, but in propor-
tion tooy to the quantity of the productive labour which it em*
ploys, it adds a much greater value to the annual produce of the
land and labour of the country, to the real wealth and revenue
of its inhabitants. Of all the ways in which a capftal can be em*
ployed, it is by far the most advantageous to the society,"—
Book IL chi^. V. p. 15.

Does nature nothing for man in manufactures ? Are the

66 OK RENT. [chap. II.

providing food for its augmented population. It is
a symptom, but it is never a cause of wealth ; for
wealth often increases most rapidly while rent is
either stationary, or even falling. Rent increases
most rapidly, as the disposable land decreases in its
productive powers. Wealth increases most rapidly
in those countries where the disposable land is most

powers of wind and water, which move our machinery, and assist
navigation, nothing ? The pressure of the atmosphere and the
elasticity of steam, which enable us to work the most stupendous
engines — are tliey not the gifts of nature ? to say nothing of the
effects of the matter of heat in softening and melting metals, of
the decomposition of the atmosphere in the process of dying
and fermentation. There is not a manufacture which can be
mentioned, in which nature does not give her assistance to man,
and give it too, generously and gratuitously.

In remarking on the passage which I have copied from Adam
Smith, Mr. Buchanan observes, ** I have endeavoured to show,
in the observations on productive and unproductive labour, con-
tained in the fourth volume, that agriculture adds no more to the
national stock than any other sort of industry. In dwelling on
the reproduction of rent as so great an advantage to society, Dr.
Smith does not reflect that rent is the effect of high price, and
that what the landlord gains in this way, he gains at the expense
of the community at large. There is no absolute gain to the
society by the reproduction of rent ; it is only one class profiting
at the expense of another class. The motion of agriculture yield-
ing a produce, and a rent in consequence, because nature con-
curs with human industry in the process of cultivation, is a mere
fancy. It is not from the produce, but from the price at which
the produce is sold, that the rent is derived ; and this price is

■

got not because nature assists in the production, but because it is
the price which suits the consumption to the supply.

CHAP. 11.3 ON RENT. Qj

fertile, where importation is least restricted, and
where through agricultural improvements, produc-
tions can be multipUed without any increase in the
proportional quantity of labour, and where conse*
quently the progress of rent is slow.

If the high price of com were the efiect, and not
the cause of rent, price would be proportionally in*
fluenced as rents were high or low, and rent would
be a component part of price. But that com which
is produced by the greatest quantity of labour is
the regulator oi the price of com ^ and rent does
not and cannot enter in the least degree as a conv-
ponent part of its price*. Adam Smith, therefore,
cannot be correct in supposing that the original
rule which regulated the exchangeable value of
commodities, namely, the comparative quantity of
labour by which they were produced, can be at all
altered by the appropriation of land and the pay-
ment of rent. Raw material enters into the com-
position of mo8t commodities, but the value of that
raw material, as well as com, is regulated by the
productiveness of the portion of capital last em«
ployed on the land, and pajdng no rent ;. and there-
fore rent is not a compcment part of the price of
[ties.

to't iiMrf;!

We have been hitherto considering the effects of

, * Th« dewrly understanding this principle is, I am persuaded,
of Ihe utmost iniportaiice to the science of political economy.

QH RENT* £CHAP% II.

the natural progress of wealth and population on
rent, in a country in which the land is of variously
productive powers ; and we have seen, that with
every portion of additional capital which it becomes
necessary to employ on the land with a less pro-
ductive return, rent would rise. It follows from
the same principles, that any circumstances in the
society which should make it unnecessary to employ
the same amount of capital on the land, and which
should therefore make the portion last employed
more productive, would lower rent. Any great re-
duction in the capital of a country, which should
-materially diminish the funds destined for the
maintenance of labour, would naturally have this
effect. Population regulates itself by the funds
which are to employ it, and therefore always in-
creases or diminishes with the increase or diminu-
tion of capital. Every reduction of capital is there-
fore necessarily followed by a less effective demand
for com, by a fall of price, and by diminished cul-
tivation. In the reverse order to that in which the
accumulation of capital raises rent, will the dimi-
nution of it lower rent. Land of a less unproduc-
tive quality will be in succession relinquished, the
exchangeable value of produce will fall, and land
of a superior quality will be the land last cultivated,
and that which will then pay no rent.

The same effects may however be produced, when
the wealth and population of a country are increas-
ed, if that increase is accompanied by such marked

CHAP. II.J ON KENT. 69

improvements in agriculture, as shall have the same
efiect of diminishing the necessity of cultivating
the poorer lands, or of expending the same amount
of capital on the cultivation of the more fertile por-
tions.

If a million of quarters of com be necessary for
the support of a given population, and it be raised
on land of the qualities of No. 1, S, 3 ; and if an
improvement be afterwards discovered by which it
can be raised on No. 1 and 2, without employing
Na 3, it is evident that the immediate effect must
be a fall of rent ; for No. 2, instead ofNo. 3, will then
be cultivated wthout paying any rent; and the
rent of No. 1, instead of being the difference be-
tween the produce of No. 3 and No. 1, will be the
dif&rence only between No. 2 and 1. With the
same population, and no more, there can be no de-
mand for any additional quantity of corn ; the ca-
pital and labour employed on No. 3 will be devoted
to the production of other commodities desirable
to the community, and can have no effect in raising
rent, unless the raw material from which they are
made cannot be obtained without employing capi-
tal less advantageously on the land, in which case
No. 3 must again be cultivated.

It is undoubtedly true, that the fall in the rela-
tive price of raw produce, in consequence of the
improvement in agriculture, or rather in conse-
quence of less labour being bestowed on its pro-
duction, would naturally lead to increased acumu.

70 ON RENT, [chap. II.

latdon } for the profits of stock would be greatly
augmented. This accumulation would lead to an
increased demand for labour, to higher wages, to
an increased population, to a further demand for
raw produce, and to an increased cultivation. It
is only, however, after the increase in the popula-
tion, that rent would be as high as before ; that is
to say, after No. 3 Was taken into cultivation. A
considerable period would have elapsed, attended
with a positive diminution of rent.

But improvements in agriculture are of tSffO
kinds : those which increase the productive powers
of the land, and those which enable us, by improv-
ing our machinery, to obtain its produce with less
labour. They both lead to a fall in the price of
raw produce j they both affect rent, but they do
f not efiect it equally. If they did not occasion a fall
in the price of raw produce, they would not be im-
provements; for it is the essential quality of an
improvement to diminish *the quantify of labour be-
fore required to produce a commodity ; and this
diminution cannot take place without a fall of its
price or relative value.

The improvements which increased the produc-
tive powers of the land, are such as the more skil-
ful rotation of crops, or the better choice of manure.
These improvements absolutely enable us to obtain
the sameproduce from a smaller quantity of land. Iff
by the introduction of a course of turnips, I can feed
my sheep besides raising my com, the land on which

CHAP. 11*3 OK RENT. 71

the ftheep were before fed becomes unnecessary, and
the same quantity of raw produce is raised by the
employment of a less quantity of land. If I dis-
cover a manure which will enable me to make a
piece of land produce 20 per cent, more com, I
may withdraw at least a portion of my capital from
the most unproductive part of my farm. But, as I
before observed, it is not necessary that land should
be thrown out of cultivation, in order to reduce
rent : to produce this effect, it is sufficient that suc-
cessive portions of capital are employed on the
same land with different results, and that the por-
tion which gives the least result should be with-
drawn. If, by the introduction of the turnip husban-
dry, or by the use of a more invigorating manure,
I can obtain the same produce with less capital,
and without distiurbing the difference between the
productive powers of the successive portions of ca- >
pital, I shall lower rent i for a different and more
productive portion will be that which will form the
standard from which every other will be reckoned.
If, for example, the successive portions of capital
yielded 100, 90, 80, 70 ; whilst I employed these
four portions, my rent would be 60, or the differ-
ence between

70 and 100 = SO'

70 and 90 = 20 f whilst the produce

70 and SO = 10 V would be S40

72 ON RENT. [chap. II.

and while I employed these portions, the rent
would remain the same, although the produce of each
should have an equal augmentation. If, instead of
100, 90, 80, 70, the produce should be increased
to 125, 115, 105, 95, the rent would still be 60,
or the difierence between

95 and. 125= SO
95 and 115= 90 I ^^»l8t the produce
95 and 105 = 10 V would be increased

440

But with such an increase of produce, without an
increase of demand*, there could be no motive
for employing so much capital on the land ; one
portion would be withdrawn, and consequently the
last portion of capital would yield 105 instead of 95,
and rent would fall to SO, or the difference between

105 and 125 = 20 '^ whilst the produce will be still f 125
105 and 115 = 10 f adequate to the wants

~ r population, for it would be

J qarters, or ^ ^^

* I hope I am not understood as undervaluing the importance
of all sorts of improvements in agriculture to landlords — their
immediate effect is to lower rent; but as they give a great
stimulus to population, and at the same time enable us to cul-
tivate poorer lands, with less labour, they are ultimately of im-
mense advantage to landlords. A period however must elapse,
during which they are positively injurious to him. . ^

/ ' ' ' '

CHAP. II-3 ON RENT. 78

the demand being only for 340 quarters.— But
there are improvements which may lower the rela-
tive value of produce without lowering the corn
rent, though they will lower the money rent of land.
Such improvements do not increase the productive
powers of the land ; but they enable us to obtain
its produce with less labour. They are rather di-
rected to the formation of the capital applied to
the land, than to the cultivation of the land itself.
Improvements in agricultural implements, such as
the plough and the thrashing machine, economy in
the use of horses employed in husbandry, and a
better knowledge of the veterinary art, are of this
nature. Less capital, which is the same thing as
less labour, will be employed on the land ; but to
obtain the same produce, less land cannot be cul-
tivated. Whether improvements of this kind, how-
ever, affect com rent, must depend on the question,
whether the difference between the produce ob-
tained by the employment of different portions of
capital be increased, stationary, or diminished. If
four portions of capital, 50, 60, 70, 80, be employ-
ed on the land, giving each the same results, and
any improvement in the formation of such capital
should enable me to withdraw 6 from each, so that
they should be 45, 55, 65, and 7^, no alteration
would take place in the com rent ; but if the im-
provements were such as to enable me to make
the whole saving on that portion of capital, which
is least productively employed, com rent would im-
mediately fall, because the difference betwee^i the

74 ON RENT* [^CHAP. H.

capital most productive, and the capital least pro^
ductive, would be diminished ; and it is this differ-
ence which constitutes rent.

Without multiplying instances, I hope enough
has been said to show, that whatever diminishes the
inequality in the produce obtained from successive
portions of capital employed on the same or on new
land, tends to lower rent ; and that whatever in-
creases that inequality, necessarily produces an op-
posite effect, and tends to raise it*

In speaking of the rent of the landlord, we have
rather considered it as the proportion of the pro*
duce, obtained with a given capital on any given
farm, without any reference to its exchangeable
value ; but since the same cause, the difficulty of
production, raises the exchangeable value of raw
produce, and raises also the proportion of raw pro-
duce paid to the landlord for rent, it is obvious
that the landlord is doubly benefited by difficulty
of production* First he obtains a greater share, *
and secondly the conunodity in which he is paid is
of greater value*.

* To make this obvious, and to show the degrees in which
corn and money rent will vary, let us suppose that the labour of
ten men will, on land of a certain quality, obtain 180 quarters of
wheat, and its value to be 4/. per quarter, or 720/. ; and Uiat the
labour of ten additional men will, on the same or any other land,
produce only 170 quarters in addition; wheat would rise from
4Z. to 4d. 4«. 8d. for 170 : 180 : : 4/, : 4/. 4j. Sd.; or, as in the pro-
duction of 170 quarters, thelabourof 10 men is necessary in one

CHAP, n.3 ON RENT. ' 75

case, and only of 9*44 in the other, the rise would be as 9.44 to
10, or as 4/. to 4/. 4«. Sd. If 10 men be further employed, and
the return be

160, the price will rise to £4 10 0

150, 4 16 0

140, 5 210

Now if no rent was paid for the land which yielded 180 quar-
ters, when corn was at 4/. per quarter, the value of 10 quarters
would be paid as rent when only 170 could be procured, which,
at 41. 4*. W. would be 42/. 7s. id. . J '. j^ 4^

20 qre. when 160 were prodaced, which at «f 4 10 0 would be j£90 0 0

50qrs 150 4 16 0 144 0 0

40 qn 140 5 S 10 205 13 4

5100^ rlOO

SOOf aod money rent hi the jSlS
in the proportion of 1300 4 proportion of ]^340

V400> V485

CHAPTER IIL

ON THE RENT OF, MINES.

The metalsy like other things, are obtained by la-
bour. Nature, indeed, produces them ; but it is
the labour of man which extracts them from the
bowels of the earth, and prepares them for our ser-
vice.

Mines, as well as land, generally pay a rent to
their owner ; and this rent, as weU as the rent of
land, is the effect, and never the cause of the high
value of their produce.

If there were abundance of equally fertile mines,
which any one might appropriate, they could yield
no rent j the value of their produce would depend
on the quantity of labour necessary to extract the
metal from the mine and bring it to market.

But there are mines of various qualities, affording
very different results, with equal quantities of labour.
The metal produced from the poorest mine that is
worked, must at least have an exchangeable value,
not only sufficient to procure all the clothes, food,
and other necessaries consumed by those employed
in working it, and bringing the produce to market.

CUAP. III.] ON tI[E rent of MINES. 77

but also to aflford the common and ordinary profits
to him who advances the stock necessary to carry
on the undertaking. The return for capital from
the poorest mine paying no rent, would regulate
the rent of all the other more productive mines. ^
This mine is supposed to yield the usual profits of
stock. All that the other mines produce more than *
this» will necessarily be paid to the owners for rent.
Since this principle is precisely the same as that
which we have already laid down respecting land,
it will not be necessary further to enlarge on it.

It will be sufficient to remark, that the same ge-
neral rule which regulates the value of raw produce
and manufactured commodities, is applicable also
to the metals ; their value depending not on the
rate of profits, nor on the rate of wages, nor on the
rent paid for mines, but on the total quantity of
labour necessary to obtain the metal, and to bring
it to market.

Like every other commodity, the value of the
metals is subject to variation. Improvements may
be made in the implements and machinery used in
mining, which may considerably abridge labour;
new and more productive mines may be discovered,
in which, with the same labour, more metal may be
obtained ; or the facilities of bringing it to market
may be increased. In either o£ these cases the
metals would fall in value, and would therefore ex-
change for a less quantity of other things. On the

78 ON THE RENT OF MINKS. [CHAP, in.

Other hand, from the increasing difficulty of obtain-
ing the metal, occasioned by the greater depth at
which the mine must be worked, and the accumu-
lation of water, or any other contingency, its value
compared with that of other things, might be con-
siderably increased.

It has therefore been justly observed, that how-
ever honestly the coin of a country may conform
to its standard, money made of gold and silver is
still liable to fluctuations in value, not only to ac-
cidental and temporary, but to permanent and na-
tural variations, in the same manner as other com-
modities.

By the discovery of America and the rich mines
in winch it abounds, a very great efifect was pro-
duced on the natural price of the precious metals.
This eSed is by many supposed not yet to have
terminated. It is probable, however, that aU the ef-
fects on the value of the metals, resulting from the
discovery of America have long ceased ; and if any
fall has of late years taken place in their value, it is
to be attributed to improvemoits in the mode of
working the mines.

From whatever cause it may have proceeded, the
efiect has been so slow and gradual^ that Httle prac-
tical inconvenience has been felt from gold and sil-
ver being the general medium in which the value
of all other things is estimated. Though undm^t-

CHAP* 111.3 ON THE RENT OF MINES. 79

edly a variable measure of value, there is probably
no commodity subject to fewer variations. This
and the other advantages which these metals pos-
sess, such as their hardness, their malleability, their
divisibility, and many more, have justly seciured the
preference every where given to them, as a stand-
ard for the money of civilized countries.

If equal quantities of labour, with equal quan-
tities of fixed capital, could at all times obtain,
fr(Hn that mine which paid no rent, equal quantities
of gold, gold would be as nearly an invariable
measure of value, as we could in the nature of
things possess. The quantity indeed would enlarge
with the demand, but its value would be invari-
able, and it would be eminently well calculated to
measure the varying value of all other things. I
have already in a former part of this work consider-
ed gold as endowed with this uniformity, and in
the following chapter I shall continue the supposi-
tion. In speaking therefore of varjdng price, the
variation will be always considered as being in the
commodity, and never in the medium in which it
is estimated.

CHAPTER IV.

ON NATURAL AND MARKET PRICE.

In making labour the foundation of the value of
commodities, and the comparative quantity of la-
bom* which is necessary to their production, the
rule which determines the respective quantities of
goods which shall be given in exchange for each
other, we must not be supposed to deny the acci-
dental and temporary deviations of the actual or
market price of conunodities from this, their pri-
mary and natural price.

In the ordinary course of events, there is no com-
modity which continues for any length of time to
be supplied precisely in that degree of abundance,
which the wants and wishes of mankind require,
and therefore there is none which is not subject to
accidental and temporary variations of price.

It IS only in consequence of such variations, that
capital is apportioned precisely, in the requisite
abundance and no more, to the production of the
different commodities which happen to be in de-
mand. With the rise or fall of price, profits are
elevated above, or depressed below their general
level, and capital is either encouraged to enter into,
or is warned to depart from the particular employ-
ment in which the variation has taken place

CHAP. IV.] ON NATURAL AND MARKET PRICE. 81

Whilst every man is free to employ his capital
where he pleases, he will naturally seek for it that
employment which is most advantageous ; he will
naturally be dissatisfied with a profit of 10 per cent.»
if by removing his capital he can obtain a profit of
15 per cent. This restless desire on the part of all
the employers of stock, to quit a less profitable for
a more advantageous business, has a strong ten-
dency to equalize the rate of profits of all, or to fix
them in such proportions, as may in the estimation
of the parties, compensate for any advantage which
one may have, or may appear to have over the other.
It is perhaps very difficult to trace the steps by
which this change is efiected : it is probably eflect*
ed, by a manufacturer not absolutely changing his
employment, but only lessening the quantity of
capital he has in that employment. In all rich
countries, there is a number of men forming what
is called the monied class ; these men are engaged
in no trade, but live on the interest of their money,
which is employed in discounting bills, or in loans
to the more industrious part of the community.
The bankers too employ a large capital on the same
objects. The capital so employed forms a circula-
ting capital of a large amount, and is employed, in
larger or smaller proportions, by all the diflerent
trades of a country. There is perhaps no manufac-
turer, . however rich, who limits his business to the
extent that his own funds alone will allow : he has
always some .portion of this floating capital, increas-^
ing or dinmushing according to the activity of the

g2 ON NATURAL AND [CHAP. lY.

demand for his commodities. When the demand
for silks increases, and that for cloth diminishes,
the clothier does not remove with his capital to the
silk trade, but he dismisses some of his workmen,
he discontinues his demand for the loan from bank-
ere and monied men ; whUe the case of the silk
manufacturer is the reverse : he wishes to employ
more workmen, and thus his motive for borrowing
is increased : he borrows more, and thus capital is
transferred from one employment to another, with-
out the necessity of a manufacturer discontinuing
his usual occupation. When we look to the mar-
kets of a large town, and observe how regularly th^
are supplied both "with home and foreign commodi-
ties, in the quantity in which they are required,
under all the circumstances of varying deiAand,
arising from the caprice of taste, or a change in
the amount of population, without often producing
either the effects of a glut from a too abundant sup-
ply, or an enormously high price from the supply
being unequal to the demand, we must confess that
the principle which apportions capital to each trade
in the precise amount that it is required, is more
active than is generally supposed.

A capitalist, in seeking profitable employment
for his funds, wiU naturally take into consideration
all the advantages which one occupation possesses
over another. He may therefore be willing to fore-
go a part of his money profit, in consideration of
the security, cleanliness, ease, or any other real or

CHAP. IV.] -MARKET P^ICE. 8^

fancied advantage which one employment may pos-
sess over another.

If from a consideration of these circumstances^
the profits of stock should be so adjusted, that in one
trade they were 20, in another 25, and in another
SO per cent., they would probably continue per-
manently with that relative difference, and with
that difference only ; for if any cause should ele-
vate the profits of one of these trades 10 per cent,
either these profits would be temporary, and would
soon again fall back to their usual station, or the
profits of the others would be elevated in the same
proportion.

The present time appears to be one of the ex-
ceptions to the justness of this remark. The ter-
mination of the war has so deranged the division
which before existed of employments in Europe,
that every capitalist has not yet found his place
in the new division which has now become necessary.

Let us suppose that all commodities are at their
natural price, and consequently that the profits of
capital in all employments are exactly at the same
rate, or differ only so much as, in the estimation of
the parties, is equivalent to any real or fancied ad-
vantage which they possess or forego. Suppose
now that a change of fashion should increase the
demand for silks, and lessen that for woollens j their
natural price, the quantity of labour necessary to

G 2

ON NATURAL AND [CHAP. IV.

their production, would continue unaltered, but
the market price of silks would rise, and that of
woollens would fall ; and consequently the profits
of the silk manufacturer would be above, whilst
those of the woollen manufacturer would be below,
the general and adjusted rate of profits. Not only
the profits, but the wages of the workmen, would
be affected in these employments. This increased
demand for silks would however soon be supplied, by
the transference of capital and labour from the wool-
len to the silk manufacture ; when the market pri-
ces of silks and woollens would again approach
their natural prices, and then the usual profits
would be obtained by the respective manufacturers
of those commodities.

It is then the desire, wliich every cafHtalist has,
of diverting his funds from a less to a more profit-
able employment, that prevents the market price
of commodities from continuing for any length of
time either much above, or much below their natu-
ral price. It is this competition which so adjusts
the changeable value of commodities, that after pay-
ing the wages for the labour necessary to their pro-
duction, and all other expenses required to put the
capital employed in its original state of efficiency,
the remaining value or overplus will in each trade be
in proportion to the value of the capital employed.

In the 7th chap, of the Wealth of Nations, all
that concerns this question is most ably treated.

CHAP. IV.] MARKET PRICE. 85

Having fully acknowledged the temporary effects
which, in particular employments of capital, may be
produced on the prices of commodities, as well as
on the wages of labour, and the profits of stock, by
accidental causes, without influencing the general
price of commodities, wages, or profits, since these
eflfects are equally operative in all stages of society,
we will leave them entirely out of our consideration,
whilst we are treating of the laws which regulate
natural prices, natural wages and natural profits, ef-
fects totally independent of these accidental causes.
In speaking then of the exchangeable value of
commodities, or the power of purchasing possessed
by any one commodity, I mean always that pow-
er which it would possess, if not disturbed by any
temporary or accidental cause, and which is its na-*
tiural price.

CHAPTER V,

{•

ON WAGES.

Labour, like all other things which are purchased
and sold, and which may be increased or diminish-
ed in quantity, has its natural and its market price.
The natural price of labour is that price which is
necessary to enable the labourers, one ¥rith another,
to subsist and to perpetuate their race, without'
either increase or diminution.

The power of the laboiurer to support himself,
and the family which may be necessary to keep up
the number of labourers, does not depend on the
qixantity of money which he may receive for wages,
but on the quantity of food, necessaries, and con-
veniences become essential to him from habit, which
that money will purchase. The natural price of
labour, therefore, depends on the price of the food
necessaries, and conveniences required for the sup-
port of the labourer and his family. With a rise
in the price of food and necessaries, the natural
price of labour will rise ; with the fall in their price,
the natural price of labour will fall.

With the progress of society the natural price of
labour has always a tendency to rise, because one
of the principal commodities by which its natural

CHAP, V.J ON WAGES. 87

price is regulated, has a tendency to become dearer,
from the greater difficulty of producing it As,
however, the improvements in agriculture, the dis-
covery of new markets, whence provisions may be
imported, may for a time counteract the tendency
to a rise in the price of necessaries, and may even
occasion their natural price to fall, so wiU the same
causes produce the correspondent effects on the
natural price of labour.

The natural price of all commodities, excepting
raw produce and labour, has a tendency to fall, in
the progress of wealth and population ; for though,
on one hand, they ate enhanced in real value, from
the rise in the natural price of the raw material of
which they are made, this is more than counter-
balanced by the improvements in machiAery, by
the better division and distribution of labour, and
by the increasing skill, both in science and arti of
the producers.

The market price of labour is the price which is
really paid for it, from the natural operation of the
proportion of the supply to the demand ; labour is
dear when it is scarce, and cheap when it is plenti-
ful. However much the market price of labour
may deviate from its natural price, it has, like com-
modities, a tendency to conform to it.

It is when the market price of labour exceeds its
natural price, that the condition of the labourer is

88 ON WAGES. [chap. V.

flourishing and happy, tliat he has it in liis power
to command a greater proportion of the necessaries
and enjoyments of life, and therefore to rear a heal-
thy and numerous family. When, however, by the
encouragement which high wages give to the in-
crease of population, the number of labourers
i& increased, wages again faU to their natural
price, and indeed from a re-action sometimes fall
below it.

When the market price of labour is below its
natiu-al price, the condition of the labourers is most
wretched: then poverty deprives them of those
comforts which custom renders absolute necessaries.
It is'only after their privations have reduced their
number, or the demand for labour has increased,
that the market price of labour will rise to its na-
tural price, and that the labourer will have the
moderate comforts which the natural rate of wages
will aflTord.

Notwithstanding the tendency of wages to con-
form to their natural rate, their market rate may,
in an improving society, for an indefinite period, be
constantly above it*; for no sooner may the impulse,
ivhich an increased capital gives to a new demand
for labour be obeyed, than another increase of ca-
pital may produce the same eifect ; and thus, if the
increase of capital be gradual and constant, the de-
mand for labour may give a continued stimulus to
an increase of people.

CHAP, v.] ON WAGES. 89

Capital is that part of the wealth of a country
which is employed in production, and consists of
food, clothing, tools, raw materials, machinery, &c«
necessaiy to give effect to labour.

Capital may increase in quantity at the same
time that its value rises. An addition may be
made to the food and clothing of a country, at the
same time that more labour may be required to pro-
duce the additional quantity than before ; in that
case not only the quantity, but the value of capital
will rise.

Or capital may increase without its value increas-
ing, and even while its value is actually diminish-
ing ; not only may an addition be made to the food
and clothing of a country, but the addition may be
made by the aid of machinery, without any increase,
and even with an absolute, diminution ii) the pro-
portional quantity of labour required to produce
them. The quantity of capital may increase, while
neither the whole together, nor any part of it singly,
will have a greater value than before, but may
actually have a less.

In the first case, the natural price of labour,
which always depends on the price of food, clo-
thing, and other necessaries, will rise; in the second,
it will remain stationary, or fall ; but in both cases
the market rate of wages will rise, for in proportion
to the increase of capital will be the increase in the

.e *

90 ON WAGES. [chap. V.

demand for labour ; in proportion to the work to
be done will be the demand for those who are to
do it.

In both cases too the market price of labour will
rise above its natural price ; and in both cases it
will have a tendency to conform to its natural price,
but in the first case this agreement will be most
speedily effected. The situation of the labourer
will be improved, but riot much improved ; for tlie
increased price of food and necessaries will absorb
a large portion of his increased wages; consequent-
ly a small supply of labour, or a trifling increase in
the population, will soon reduce the market price
to the then increased natural price of labour.

In the second case, the condition of the labourer
.will be very greatly improved ; he will receive in-
creased money wages, without having to pay any
increased price, and perhaps even a diminished price
for the commodities which he and his family con-
sume ; and it will not be till after a great addition
has been made to the population, that the market
price of labour will again «ink to its then low
and reduced natural price.

Thus, then, with every improvement of society,
with every increase in its capital, the market wages
of labour will rise ; but the permanence of their
rise will depend on the question, whether the na-
tural price of labour has also risen ; and this again

CHAPi V.J ON WAGES. 91

will depend on the rise in the natural price of those
necessaries on which the wages of labour are ex-
pended.

It is not to be understood that the natural price
of labour, estimated even in food and necessaries,
is absolutely fixed and constant It varies at differ-
ent times in the same country, and very materially
difiers in different countries*. It essentially de-
pends on the habits and customs of the people.
An English labourer would consider his wages un-
der their natural rate, and too scanty to support a
family, if they enabled him to purchase no other food
than potatoes, and to live in no better habitation
than a mud cabin ; yet these moderate demands of
nature are often deemed sufficient in countries
where " man's life is cheap,** and his wants easily
satisfied. Many of the conveniences now enjoyed
in an English cottage, would have been thought
luxuries at an earlier period of our history.

* " The shelter and the clothing which are indispensable in
one country may be no way necessary in another ; and a labour-
er in Hindostan may continue to work with perfect vigour, though
receiving, as his natural wages, only such a supply of covering
as would be insufficient to preserve a labourer in Russia from •
perishing. Even in countries situated in the same climate,
difierent habits of living will often occasion variations in the na-
tural price o£ labour, as considerable as those which are produ-
ced by natural causes/' — p. 68. An Essay on the ExtemMl
Corn Trade, by IL Torrens, Esq.

The wixole of this subject is most ably illustrated by Colonel
Torrenst

92 ON WAGES. [chap* V.

From manufactured oommodities always falling,
and raw produce always rising, with the progress
of society, such a disproportion in their relative
value is at length created, that in rich coun-
tries a labourer, by the sacrifice of a very small
quantity only of his food, is able to provide libe-
rally for all his other wants.

Independently of the variations in the value of mo-
ney, which necessarily affect money wages, but which
we have here supposed to have no operation, as we
have considered money to be uniformly of the same
value, it appears then that wages are subject to a
rise or fall from two causes :

1st. The supply and demand of labourers.

2dly. The price of the commodities on which
the wages of labour are expended.

In different stages of society, the accumulation
of capita], or of the means of employing labour, is
more or less rapid, and must in all cases depend on
the productive powers of labour. The productive
powers of laboiu* are generally greatest when there
is an abundance of fertile land : at such periods ac-
cumulation is oflen so rapid, that labourers cannot
be supplied with the same rapidity as capital.

It has been calculated, that under favourable
circumstances population may be doubled in twen-
ty-five years j but under the same favourable cir-

CHAP. y«3 ^^ WAGES. gs

cumstances, the whole capital of a country might
possibly be doubled in a shorter period. In that
case, wages during the whole period would have a
tendency to rise, because the demand for labour
would increase still faster than the supply.

In new settlements, where the arts and knowledge
of countries far advanced in refinement are intro-
duced, it is probable that capital has a tendency to
increase faster than mankind : and if the deficien-
cy of labourers were not supplied by more popu-
lous countries, this tendency would very much raise
the price of labour. In proportion as these coun-
tries become popidous, and land of a worse quality
is taken into cultivation, the tendency to an increase
of capital diminishes ; for the surplus produce re-
nutining, after satisfying the wants of the existing
population, must necessarily be in proportion to
the facility of production, viz. to the smaller num-
ber of persons employed in production. Although,
then, it is probable, that under the most favoiurable
circumstances, the power of production is still great-
er than that of population, it will not long continue
so; for the land being limited in quantity, and
difiering in quality, with every increased portion of
capital employed on it, there will be a decreased
rate of production, whilst the power of population
continues always the satne.

In those coimtries where there is abundance of
fertUe land, but where, from the ignorance, indo-

94 ON WAGES. [chap. V*

lence, abd barbarism of the inhabitants, they are
exposed to all the evils of want and famine, and
where it has been said that population presses
against the means of subsistence, a very different
remedy should be applied from that which is neces-
sary in long settled countries, where, from the di-
minishing rate of the supply of raw produce, all the
evils of a crowded population are experienced. In
the one case, the evil proceeds from bad govern-
ment, from the insecurity of property, and from a
want of education in all ranks of the people. To
be made happier they require only to be better go-
verned and instructed, as the augmentation of ca-
pital, beyond the augmentation of people, would be
the inevitable result. No increase in the population
can be too great, as the powers of production are
stm greater. In the other case, the population in-
creases faster than the funds required for its sup-*
port. Every exertion of industry, unless accom-
panied by a diminished rate of increase in the
population, will add to the evil, for production
cannot keep pace with it.

With a population pressing against the means of
subsistence, the only remedies are either a reduc-
tion of people, or a more rapid accumulation of ca-
pital. In rich countries, where all the fertile land
is already cultivated, the latter remedy is neither
very practicable nor very desirable, because its ef-
fect would be, if pushed very far, to render all
classes equally poor. But in poor countries^ where

CHAP. V.3 ON WAG£S. Off

there are dbundant means of production in store,
from fertile land not yet brought into cultivation,
it is the only safe and efficacious means of removing
the evil, particularly as its effect would be to elevate
all classes of the people.

The friends of humanity cannot but wish that in
aU countries the labouring classes should have a
taste for comforts and enjo3rments, and that they
should be stimulated by all legal means in their ex-
ertions to prociue them. There cannot be a better
security against a superabundant population. In
those countries, where the labouring classes have
the fewest wants, and are contented with the
cheapest food, the people are exposed to the great-
est vicissitudes and miseries. They have no place
of refuge firom calamity ; they cannot seek safety
in a lower station ; they are already so low, that
they can fall no lower. On any deficiency of the
chief article of their subsistence, there are few sub-
stitutes of which they can avail themselves, and
dearth to them is attended with almost all the evils
of famine.

In the natiual advance of society, the wages of
Is^our will have a tendency to fall, as far as they
are regulated by supply and demand ; for the sup-
ply of labourers will continue to increase at the
same rate, whUst the demand for them wiU increase
at a slower rate. If, for instance, wages were re-
gulated by a yearly increase of capital, at the rate

96 ON WAGES. [chap. V.

of 2 per cent., they would fall when it accumulated
only at the rate of 1 J per cent. They would fall
still lower when it increased only at the rate of 1,
or i per cent., and would continue to do so until
the capital became stationary, when wages also
would become stationary, and be only sufficient to
keep up the numbers of the actual population. I
say that, under these circumstances, wages would
fall, if they were regulated only by the supply and
demand of labourers ; but we must not forget, that
wages are also regulated by the prices of the com-
modities on which they are expended.

As population increases, these necessaries will be
constantly rising in price, because more labour will
be necessary to produce them. If, then, the money
wages of labour should fall, whilst every commodity
on which the wages of labour were expended rose,
the labourer would be doubly affected, and would
be soon totally deprived of subsistence. Instead,
therefore, of the money wages of labour falling,
they would rise ; but they woidd not rise sufficiently
to enable the labourer to purchase as many comforts
and necessaries as he did before the rise in the
price of those commodities. If his annual wages
were before 24/., or six quarters of com when the
price was 4/. per quarter, he would probably receive
only the value of five quarters when com rose to
5L per quarter. But five quarters would cost 25/.;
he would therefore receive an addition in his money
wagesi though with that addition he would be un-

CHAP. V.3 ON WAGES. 97

able to furnish himself with the same quantity of
com and other commodities, which he had before
consumed in his family.

Notwithstanding, then, that the labourer would
be really worse paid, yet this increase in his wages
would necessarily diminish the profits of the manu*
facturer; for his goods would sell at no higher
price, and yet the expense of producing them
would be increased. This, however, will be con-
sidered in our examination into the principles which
regulate profits.

It appears, then, that the same cause which
raises rent, namely, the increasing difficulty of pro-
viding an additional quantity of food with the same
proportional quantity of labour, will also raise
wages ; and therefore if money be of an unvarying
value, both rent and wages will have a tendency to
rise with the progress of wealth and population.

But there is this essential difierence between the
rise of rent and the rise of wages. The rise in the
money value of rent is accompanied by an increased
share of the produce ; not only is the landlord's
money rent greater, but his com rent also ; he will
have more com, and each defined measure of that
com will exchange for a greater quantity of all
other goods which have not been raised in value.
The fate of the labourer will be less happy; he will
receive more money wages, it is tme, but his com

Qg ON WAGES. [chap. V.

wages will be reduced j and not only his command
of com, but his general condition will be deteriora-
ted, by his finding it more diflScult to maintain the
market rate of wages above their natural rate.
While the price of com rises 10 per cent, wages
will always rise less than 10 per cent, but rent wiB
always rise more; the condition of the labourer
will generally decline, and that of the limdlord will
always be improved.

When wheat was at 4*1. per quarter, suppose the
labourer's wages to be 24/. per annum, or the value
of six quarters of wheat, and suppose half his wages
to be expended on wheat, and the other halii or
12/., on other things. He would receive

2«. 14tf. ) (4:1 4j. 8rf. ) (5.83 qrs.

t5l. lOt. f when wheat ^4/. lOs. f or the 15J66 qre.

26/. Ss. t was at j 4/. 16«. t value of j 5.50 qrs.

27l.Ss.6d) isl^s.lOd.) (5.83 qrs.

He would receive these wages to enable him to
live just as well, and no better, than before j for
when corn was at 4/. per quarter, he would ex-
pend for three quarters of com, at 4/. per quar-
ter 12/.

and on other things 12/.

24/.

When wheat .was 4/. 4«. 8</., three quarters,
which he and his family consumed, would cost

him .... 12/. 14^.

other things not altered in price . . 12^

24/. 14j«

CHAP. V.y ON WAGES. 99

When at 4L 10*., three quarters of wheat woidd

cost 13/. 105.

and other things 12/.

951. 10s.
When at 4/. 16*., three qrs^ of wheat 14/. 8*.
Other things 12/.

>*mimm^m»tm

26/. 8*.
When at 51. 2*. lOd. three quarters of wheat

would cost tSL 8*» 6A

Other things I2/L

27/. 8*. 6rf.

In proportion as corn became dear, he would re-
ceive less com wages, but his money wages would
always^ increase, whilst his enjoyments, on the above
supposition, would be precisely the same. But as
other commodities would be raised in price in pro-
portion Bs raw produce entered into their composi-
tion, he would have more to pay for some of them.
Although his tea, sugar, soap, candles, and house
rent, would probably be no deai-er, he would pay
more for his bacon, cheese, butter, linen, shoes, and
doth ; and therefore, even with the above increase
of wages, his situation would be comparatively worse.
But it may be said that I have been considering
the effect of ws^es on price, on the supposition that
gold, or the metal from which money is made» is
trhe produce of the country in which wages varied ;
and that the consequences which I have deduced

H 2

100 ON WAGES. [chap, V.

agree little with the actual state of things, because
gold is a metal of foreign production. The cir-
cumstance, however, of gold being a foreign pro-
duction, will not invalidate the truth of the argu-
ment, because it may be shewn, that whether it
were found at home, or were imported from abroad,
the effects ultimately and, indeed, immediately
would be the same.

When wages rise, it is generally because the in-
crease of wealth and capital have occasioned a new
demand for labour, which wUl infallibly be attended
wiih an increased production of commodities. To
circulate these additional commodities, even at the
same prices as before, more money is required, more
of this foreign commodity from which money is
made, and which can only be obtained by impor-
tation. Whenever a commodity is required in
greater abundance than before, its relative value
rises comparatively with those commodities with
which its purchase is made. If more hats were
wanted, their price would rise, and more gold would
be given for them.. If more gold were required,
gold would rise, and hats would fall in price, as a
greater quantity of hats and of all other things would
then be necessary to purchase the same quantity of
gold. But in the case supposed, to say that com-
modities will rise, because wages rise, is to affirm
a positive contradiction ; for we iSbrst say that gold
will rise in relative value in consequence of demand,
and secondly, that it will fall in relative value be-
cause prices will rise, two effects which are totally

CHAP. V.J ON WAGES* 101

incompatible with each other. To say that com-
modities are raised in price, is the same thing as to
say that money is lowered in relative value j for it
is by commodities that the relative value of gold is
estimated. If then all commodities rose in price,
gold could not come from abroad to purchase those
dear commodities, but it would go from home to
be employed with advantage in purchasing the
comparatively cheaper foreign commodities. It ap-
pears, then, that the rise of wages will not raise the
prices of commodities, whether the metal from
which money is made be produced at home or in a
foreign country. AU commodities cannot rise at
the same time without an addition to the quantity
of money. This addition could not be obtained at
home, as we have already shewn ; nor could it be
imported from abroad. To purchase any additional
quantity of gold from abroad, commodities at home
must be cheap, not dear. The importation of gold,
and a rise in the price of all home-made commodi-
ties witli which gold is purchased or paid for, are
eflects absolutely incompatiable. The extensive
use of paper money does not alter this question,
for paper money conforms, or ought to conform, to
the value of gold, and therefore its value Is influen-
ced by such causes only as influence the value of
that metal.

These then are the laws by which wages are re-
gulated, and by which the happiness of far the great-
est part of every community is governed. Like all
other contracts, wages should be left to the fair and

102 OV WAGES. [chap. V.

free coiupetition of the market, and should never
be K^ntroUed by the interference of the legislature.

The clear and direct tendency of the poor laws,
is in direct opposition to these obvious principles :
it is not, as the legislature benevolently mtended^
to amend the condition of the poor, but to deterio-
rate the condition pf both poor and rich } instead
of making the poor ridi, they are calculated U}
make the rich poor ; and whilst the present laws
^re in force, it is quite in the natural order of things
that the fund for the maintenance of the poor
should progressively increase, till it has absorbed
a}l the net revenue of the country, or at least so
much of it as the state shall leave to us, after satis-
fying its own never failing demands for the public
expenditure*.

^his pernicious tendency of these laws is no
longer a mystery, since it has been fully developed
by the abl^ hand of Mr. Malthus j and every fnend
to the jpoor must ardently wish for their abolition.
UnjEQrtunately, however, they have been so long es-
t^dblished, and the habits of the poor have been so

* With Mr. Buchanan in the following passage, if it refers to
temporary states of misery, I so far agree, that '^ the great evil
of the labourer's condition is poverty, arising eidier from a
scarcity of food or of work ; and in all countries, laws without
nyipber have been enacted for his relief. But there are miseries
ID the social state which legislation cannot relieve; and it is
useful therefore to know its limits, that we may not, by aiming
at what is impracticable, miss the good which is really ia our
power." — Buchanan^ page 61.

CHAP. V\2 ON WAGES. lOS

formed upon their operation, that to eradicate them
vnth safety frmn our political system, requires the
most cautious and skilful management. It is agreed
by all who are most friendly to a repeal of these
laws, that if it be desirable to prevent the most
overwhelming distress to those for whose ben^t
they were erroneously enacted, their abolition
should be efiected by the most gradual steps.

It is a truth which admits not a doubt, that
the comforts and well-being of the poOT cannot be
permanently secured without some regard on their
part, or some effort on the part of the legislature,
to regulate the increase of thdr numbers, and to
render less frequent among them early and impro-
vident marriages. The operation of the system of
poor laws has been directiy contrary to this. They
have rendered restraint superfluous, and have in-
vited imprudence, by offering it a portion of the
wages of prudence and industry*.

• The progress of knowledge manifested upon this subject in
the House of Commons since 1796, has happily not been very
small, as may be seen by contrasting the late report of the com-
mittee on the poor laws, and the following sentiments of Mr.
Pitt, in that year.

** Let us," said he, " make relief in cases where there are a
number of children a matter of right and honour, instead of a
groun dof opprobrium and contempt. This will make a large fa-
mily a blessing, and not a curse ; and this will draw a proper
line of distinction between those who, are able to provide for
themselves by their labour, and those who, after having enrich-
ed their country with a number of children, have a claim upon

104 ON WAGES. fCHAP. ¥•

The nature of the evil points out the remedy.
By gradually contracting the sphere of the poor
laws \ by impressing on the poor the value of inde-
pendence, by teaching them that they must look
not to systematic or casual charity, but to their
own exertions for support, that prudence and fore-
thought are neither unnecessary nor unprofitable
virtues, we shall by d^rees approach a sounde
and more healthful state.

No scheme for the amendment of the poor laws
merits the least attention, which has not their abo-
lition for its ultimate object ; and^ he is the best
friend to the poor, and to the cause of humanity,
who can point out how this end can be attained
with the most security, and at the same time with
the least violence. It is not by raising in any man-
ner different from the present, the fund from which
the poor are supported, that the evil can be mitiga-
ted. It would not only be no improvement, but it
would be an aggravation of the distress which we
wish to see removed, if the fund were increased in
amount, or were levied according to some late pro-
posals, as a general fund from the country at large.
The present mode of its collection and application
has served to mitigate its pernicious effects. Each
parish raises a separate fund for the support of its
own poor. Hence it becomes an object of more in-
terest and more practicability to keep the rates low,

its assistance for support."— Hcrz/sarf/'^ Parliamentary Histortf^
vol. 32, page 710,

CHAP. V,] ON WAGES. 105

than if one general fund were raised for the relief
of the poor of the whole kingdom. A parish is
much more interested in an economical collection
of the rate, and a sparing distribution of relief, *when
the whole saving will be for its own benefit, than if
hundreds of other parishes were to partake of it.

It is to this cause, that we must ascribe the fact
of the poor laws not having yet absorbed all the
net revenue of the country ; it is to the rigour
with which they are appUed, that we are indebted for
their not having become overwhelmingly oppressive.
If by law every human being wanting support could
be sure to obtain it, and obtain it in such a degree
as to make life tolerable comfortable, theory would
lead us to expect that all other taxes together would
be light compared with the single one of poor rates.
The principle of gravitation is not more certain than
the tendency of such laws to change wealth and
power into misery and weakness ; to call away the
exertions of labour from every object, except that
of providing mere subsistence ; to confound all in-
tellectual distinction ; to busy the mind continually
in supplying the body's wants; until at last all
classes should be infected with the plague of uni-
versal poverty. Happily these laws have been in
operation during a period of progressive prosperity,
when the funds for the maintenance of labour have
regularly increased, and when an increase of popu-
lation would be naturally called for. But if our
progress should become more slow j if we should

106 OK WAGE& [chap. V.

attain the staticmaiy state, fiom which I trust we
are yet far distant, then will the pernicious nature
of these laws become more manifest and alarming;
and then* too, wiU their removal be obstructed by
many additionsd difficulties.

CHAPTER VL

ON PROFITS.

The profits of stock, in different employments, hav-
ing been shewn to bear a proportion to each other,
and to have a tendency to vary all in the same de-
gree and in the same direction, it remains for us to
consider what is the cause of the permanent varia-
tions in the rate of profit, and the consequent per-
manent alterations in the rate of interest.

We have seen that the price* of com is regula-
ted by the quantity of labour necessary to produce
it, with that portion c£ capital which pays no rent*
We have seen, too, that all manufactured commodi-
ties rise and faU in pri<^, in proportion as more or
less labour becomes necessary to their production.
Neither the fanner who cultivates that quantity of
land, which regulates price, nor the manu&cturer,
who manu&ctures goods, sacrifice any portion of
the produce for rent. The whole value of their
commoditieB is divided into two portions only : one
constitutes the profits of stock, the other the wages
c^ labour.

* The reader is desired to bear in mindi that for the purpose
of making the subject more clear, I consider money to be inva-
riable in value, and therefore every variation of price to be refer-
able to an alteration in the value of the commodity.

108 ON PROFITS. I^CHAP. VI.

Supposing com and manufactured goods always
to sell at the same price, profits would be high or
low in proportion as wages were low or high. But
suppose com to rise in price because more labour
is necessary to produce it ; that cause will not raise
the price of manufactured goods in the production of
which lio additional quantity of labour is required.
If, then, wages continued the same, the profits of
manufacturers would remain the same ; but if, as
is absolutely certain, wages should rise with the
rise of corn, then their profits would necessarily fall.

If a manufacturer always sold his goods for the
same money, for 1000/., for example, his profits
would depend on the price of the labour necessary
to manufacture those goods. His profits would be
less when wages amounted to 800/. than when he
paid only 600/. In proportion then as wages rose,
would profits fall. But if the price of raw produce
would increase, it may be asked, whether the fanner
at least would not have the same rate of prdSts, al-
though he should pay an additional sum for wages ?
Certainly not : for he will not only have to pay, in
common with the manufacturer, an increase of
wages to each labourer he employs, but he will be
obliged either to pay rent, or to employ an addi-
tional number of labourers to obtain the same pro-
duce ; and the rise in the price of raw produce will
be proportioned only to that rent, or that addi-
tional number, and will not compensate him for the
rise of wages.

CHAP, VI.] ON PROFITS^, lOQ

If both the manufacturer and farmer employed
ten men, on wages rising from 34/. to 25L per an-
nimi per man, the whole sum paid by each would
be 250/. instead of 240/. This is, however, the
whole addition that would be paid by the manu-
facturer to obtain the same quantity of commodi-
ties J but the farmer on new land would probably
be obliged to employ an additional man, and there-
fore to pay an additional sum of 25/. for wages ;
and the fanner on the old land would be obliged
to pay precisely the same additional sum of 25/. for
rent ; without which additional laboiu*, com would
not have risen, nor rent have been increased. One
will therefore have to pay 275/. for wages alone,
the other, for wages and rent together ; each 25/.
more than the manufacturer : for this' latter 25/.
the farmer is compensated by the addition to the
price of raw produce, and therefore his profits still
conform to the profits of the manufacturer. As
this proposition is important, I will endeavour still
fiuther to elucidate it.

We have shewn that in early stages of society,
both the landlord's and the labourer's share of the
value of the produce of the earth, would be but
small ; and that it would increase in proportion to
the progress of wealth, and the difficulty of procu-
ring food. We have shewn, too, that although the
value of the labourer's portion will be increased by
the high value of food, his real share will be dimin-
ished ; whilst that of the landlord will not only be

1 10 ON PROFITS. [chap. VI.

raised in value, but will also be increased in quan-
tity.

The remaining quantity of the produce of the
land^ after the landlord and labourer are paid,
necessarily belongs to the fanner, and constitutes
the profits of his stock. But it may be alleged,
that though as society advances, his proportion of
the whole produce will be diminished, yet as it will
rise in value^ he, as well as the landlord and labour-
er, may, notwithstanding, receive a. greater value.

It may be said for example, that when com rose
from 4/. to 10/., the 180 quarters obtained from
the best land would sell for 1800/. instead of 7S0/.$
and, therefore, though the landlord and labourer
be proved to have a^ greater value for rent and
wages, still the value of the fanner's profit might
also be augmented* This^ however, is impossible,
as I shall now endeavour to shew.

In the first place, the price of com would rise
only in proportion to tiie increased difficulty of
growing it on land of a worse quality. '

It has been already remarked, that: if jbhe labour
of tea men wili. on laaid of a cert^ist quality, ob^-
tain 180 quarters of wheat, and its value be 4/. per
quarter, or 720/. ; and if the Id^our of ten a^li-
tional men, will on the same or any other land pro-
duce only 170 quarters in addition^ wheat would

CHAP. VI.] ON PROFITS. Ill

rise from 4/. to 4/. 4^. Sd. ; for I7O: 180: :4/. :
4/. 4^. Sd. In other words, as for th€ production
of 170 quarters, the labour of ten men is neces-
sary, in the one case, and only that of 9*44 in the
other, the rise would be as 9*44 to 10, or, as 4/*
to 4/. 45* 8^ In the same manner it might be
shewn, that if the labour of ten additional men
would only produce I60 quarters, the price would
further rise to 4/. 10^. ; if 150, to 4/. 16^. &c. &c.

But when ISO quarters were produced on
the land paying no rent, and its price
was 4iL per quarter, it is sold for . • « jf7S0

And when I70 quarters were produced on
the biid paying no rent,, and the price
rose to 4^ 4& Sd. it still sold for . • • 720

So 160 quarters at 4/. lOs^ produce . . • 7^

And 150 quarters at 4/. 16^. produce the

same sum of . * 720

Now it is evident, tioiat if out of tihese equal va-
lues^ the farmer i&atone time obliged to pay wages
feguiated by* the price of wheat at 4/., and.at other
tinea at higher prices^ tlie rate of his profits will
dimindbh in proportikm to the rise in the price of
corn.

Jm iim case* therefore^ I think it. is dearly de-
mmstrsiei that ar rise in the price of com, which
increases the money wages of the labourer, d&aii-
niahes the money value of the farmer's profits.

■ /* m - . „

• ■-'•'» ..mm. •' ^

114i ON PROFITS. ' [chap.. VI.

rise of wages*. If the fanner gets no additional
value for the com which remains to him after pay-
ing rent, if the manufacturer gets no additional
value for the goods which he manufactures, and if
both are obliged to pay a greater value in wages,
can any point be more clearly established than that
profits must fall, with a rise of wages?

The farmer then, although he pays no part of
his landlord's rent, that being always regulated by
the price of produce, and invariably falling on the
consumers, has however a very decided interest in
keeping rent low, or rather in keeping the natural
price of produce low. As a consumer of raw pro-
duce, and of those things into which raw produce
enters as a component part, he will, in common
with all other consumers, be interested in keeping
the price low. But he is most materially con-
cerned with the high price of com as it affects
wages. With every rise in the price of com, he
will have to pay out of an equal and unvarying
sum of 72OL an additional sum for wages to the
ten men whom he is supposed constantly to em-
ploy. We have seen in treating on wages that
they invariably rise with the rise in the price of

* The reader is aware, that we are leaving out of our consider-
ation the accidental variations arising from bad and good sea*
sonsy or from the demand increasing or diminishing by anj sud-
den effect on the state of population. We are speaking of the
natural and constant, not of tlie accidental and fluctuating
price of corn.

«HAP. Vr.] OM PROFITS* 115

raw produce. On a basis assumed for the purpose
c^ calculation, page 99» it will be seen that if when
wheat is at 4/L per quarter, wages should be 34^
per annum.

^ £• $• dm £• $• dm

wages would

Now, of the unvarying fund of 790/. to be dis-
tributed between labourers and farmers,

Jum 4* dm JEm Sm at* $• dm

iSO O 0

i7S 0 0

.III »«^u,« < 255 0 >«;„ ,.^.5— < to5 0 0

^56 0 0

.445 15 *

will receive \ ^^ ^ r will receive

* The 180 quarters of com would be divided in the following
proportions between landlords, farmers, and labourers, with the
above-named variations in the value of conu

Price per qr. Rent Profit. Waf;es. TotaL

£. M. d. In Wheat Id Wheat

4 0 0 None. ISOqrs.

4 4 8 10 qn. 111.7

4 10 0 SO 103.4

4 16 0 30 95

5 S 10 40 86.7

and, under the same circumstances, money rent, wages, and
profit, would be as follows :

Price per qr. Rent Profit Wages. Total.

j£. 9. d. £. 9, 4. •£. «. d. jC. 9. d. £. «. d.

4 0 0 None. 48000 240 00 720 00

4 4 8 42 7 6 473 0 0 247 0 0 762 7 6

4 10 0 90 0 0 465 0 0 255 0 0 810 0. 0

4 16 0144 00 45600 264 00 86400

5 2 10 205 13 4 445 15 0 274 5 O 925 13 4

"l2

1X6 on PROFITS. . Z^^^* V^

And supposing that the original capital of the far-
mer was 3000/., the profits of his stock being in
the first instance 480/. would be at the rate of l6
per cent. When his profits feU to 473/. they
would be at the rate of 15.7 per cent.

4f65l. .... 15.5

456/. . . . • 15-2
445/. . * . . • 14.8

But the rate of profits will fall still more, be-
cause the capital of the farmer, it must be recol-
lected, consists in a great me^asure of raw produce,
such as his corn and hay-ricks, his unthreshed
wheat and barley, his horses and cows, which would
all rise in price in consequence of the rise of pro-
duce: His absolute profits would fall from 480/.
to 445/. 155.; but if from the cause which I have
just stated, his capital should rise from 3000/. to
3200/. the rate of his profits would, when com was
at SI. 2s. lOrf. be under 14 per cent.

If a manufacturer had also employed 3000L in
his business, he would be obliged in consequence
of the rise of wages, to increase his capital, in
order to be enabled to carry on the same business.
If his commodities sold before for 720/. they would
continue to sell at the same price ; but the wages
of labour, which were before 240/. would rise when
com was at 5/. 2s. lOd. to 274/. 5s. In the first
case he would have a balance of 480/. as profit on
3000/^, in the second he would have a profit only

CHAP. VI.] ON PROFITS. Hy

of 445/. 155., on an increased capital/ and there-
fore his profits would conform to the altered rate
of those of the farmer.

There are few commodities idiich are not more
or less affected in their price by the rise of raw
produce, because some raw material from the land
enters into the composition of most commoditities.
Cotton goods, linen, and cloth, will all rise in
price with the rise of wheat ; but they rise on ac-
count of the greater quantity of labour expended
on the raw material from which they are made,
and not because more was paid by the manufac*
turer to the laboiurers whom he employed on those
commodities.

In all cases, commodities rise because more la-
bour is expended on them, and not because the
labour which is expended on them is at a higher
value. Articles of jewellery, of iron, of plate, and
of copper, would not rise, because none of the raw
produce from the surface of the earth enters into
their composition.

It may be sdd that I have taken it for granted,
that money wages would rise with a rise in the
price of raw produce, but that this is by no means
a necessary consequence, as the labourer may be
contented with fewer enjoyments. It is true that
the wages of labour may previously have been at
a high level, and that they may bear some reduc-

118 ON PROFITS* f CHAP. VK

tion. If so, the fall of profits will be checked j
but it is impossible to conceive that the money
price of wages should fall, or remain stationary
with a gradually increasing price of necessaries ;
and therefore it may be taken for granted that,
under ordinary circumstances, no permanent rise
takes place in the price of necessaries, without
occasioning, or having been preceded by a rise in
wages.

The effects produced on profits would have beeit
the same, or nearly the same, if there had been
hay rise in the price of those other necessaries,
besides food, on which the wages of labour are
expended. The necessity which the labourer
would be under of paying an increased price for
such necessaries, would oblige him to demand
more wages ; and whatever increases wages, ne*
^essarily reduces profits. But suppose the price
of silks, velvets, furniture, and any other com-
modities, not required by the labourer, to rise in
consequence of more labour being expended on
them, would not that affect profits? Certainly
not : for nothing can affect profits but a rise in
wages J silks and velvets are not consumed by the
labourer, and therefore cannot raise wages.

•

It is to be understood that I am speaking of pro-
fits generally. I have already remarked, that the
market price of a commodity may exceed its na-
tural or necessary price, as it may be produced in

CHAP. VI J ON PROFITS. II9

less abundance tiian the new demand for it requires;
TWs, however, is but a temporary effect. The high
profits on capital employed in producing that com-
modity, will naturally attract capital to that
trade; and as soon as the requisite funds are
supplied^ and the quantity of the commodity
is duly increased, its price will fall, and the
profits of the trade will conform to the general
level. A fall in the general rate of profits is by
no means incompatible with a partial rise of profits
in particular employments. It is through the me-
quality of profits, that capital is moved from one
emplojrment to another. Whilst then general pro-
fits are falling, and gradually settling at a lower
level in consequence of the rise of wages, and the
increasing difficulty of supplying the increasing
population with necessaries, the profits of the
farmer may, for an interval of some little duratiout
be above the former level. An extraordinary sti-
mulus may be also given for a certain time, to a
particular branch of foireign and colonial tcade ;
but the admission of this fact by no means invali-*
dates the theory, that profits depend on high or
low wages, wages on the price of necessaries, and
the price of nece^iparies chiefly on the price of food,
because all other requisites may be increased al-
most without limit.

It should be recollected that prices always vary
in the market, and in the first instance, through
the comparative state of demand and supply* Al*

120 ON PROFITS. j^CHAP, VI.

though cloth could be furnished at 40^. per ydrd^
and give the usual profits of stock, it may rise to
60 or 80^. from a general change of ^hion, oit
from any other cause which should suddenly and
unexpectedly increase the demand, or diminkh the
Supply of it. The makers of cloth will for a time
have unusual profits, but capital will naturally flow
to that manufacture, till the supply and demand
are again at their fair level, when the price of cloth
will again sink to 40^., its natural or necessary
price. In the same manner, with every increased
demand for com, it may rise so high as to affi>rd
more than the general profits to the farmer. If
there be plenty of fertile land, the price of com
wiU again fall to its former standard, after the re-
quisite quantity of capital has been employed in
producing it, and profits will be as before ; but if
there be not plenty of fertile land, if, to produce
this additional quantity, more than the usual quan-
tity of capital and labour be required, cofn will
aot fall to its former level. Its natural price will
be raised, and the farmer, instead of obtaining per-
manently larger profits, will find himself obliged
to be satisfied with the diminished rate which is the
inevitable consequence of the rise of wages, pro^
duced by the rise of necessaries.

The natural tendency of profits then is to fall ;
for, in the progress of society and wealdi, thd ad-
ditional quantity of food required is obtained by
the sacrifice of more and more labour. Thia ten-

CSAF. VI.3 ON PROFITO. 121

dehcy, this gravitation as it wer6 of profits, is hap-
pily checked at n^eated intervfils.by the improve-
ments in machinery, connected with the produc-
tion of hecessaries, as well as by discoveries in tlie
9cience of agriculture which enable us to relinquish
a portion of labour before required, and therefore
to lower the price of the prime necessary of the
labourer. The rise in the price of necessaries and
in the wages of labour is however limited ; for as
soon as wages should be equal (as in the case
formerly stated) to 720/., the whole receipts of the
farmer, there must be an end ol* accumulation ;
for no capital can then yield any profit whatever^ and
no additional labour can be demanded, and conse-
quently population will have reached its highest
point. Long indeed before this period, the very
low rate of profits will have arrested all accumula-
tion, and almost the whole produce of the coimtry,
after paying the labourers, will be the property of
the owners of land and the receivers of tithes and
taxes.

' Thus, taking the former very imperfect basis
as the grounds of my calculation, it would appear
that when com was-at 20/. per quarter, the whole
aet income of the country would belong to the land-
lords, for then the same quantity of laboiur that was
aiiginally necessary to produce 180 quarters, would
be necessary to produce 36 ; since 20/. : 4/. : : 180 :
S6. The farmer then, who produced 180 quarters,
(if any such there were^ for the cid and new eapi-

122 ON PROFITS. [chap. VI.

tal eixiployed on the land would be so blended, that
it could in no way be distinguished,) would sell
the

180 qn. at 20/. per qn or . . . . ^S600

/- to landlord for rent, being the ^

the yalue of 144 qrs. < difference between 86 and ^ 2880

( 180 qrs. 3 -—

S6 qrs. ^ 720

the value of 36 qrs. to labourers ten in number . • 720

leaving nothing whatever for profit.

I have supposed that at this price of 90L the labourers
would continue to consume three quarters each per an«
num or .•••••• . ^60

And that on the other commodities
they would expend • • • • 12

72 for each labourer.
And therefore ten labourers would cost 720/. per annum.

In all these calculations I have been desirous only
to elucidate the principle, and it is scarcely neces*
sary to observe, that my whole basis is assumed at
random, and merely for the purpose of exemplifi-
cation. The results though difierent in degree,
would have been the same in principle, however
accurately I might have set out in stating the differ-
ence in the number of labourers necessary to ob-
tain the successive quantities of com required* by
an increasing population, the quantity consumed
by the labourer's family, &c. &c. My object has
been to simplify the subject, and I have therefore
made no allowance for the increasing price of the
other necessaries, besides food of the labourer ; an
increase which would be the consequence of the

GHAP. VI.3 ON PROFITS. 123

•

increased value of the raw materials from which
they are made, and which would of course further
increase wages, ami lower profits.

I have already said, that long before this state of
prices was become permanent, there would be no
motive for accumulation ; for no one accumulates
but with a view to make his accumulation pro-*
ductive, and it is only when so employed that it
operates on profits. Without a motive there could
be no accumulation, and consequently such a state
of prices never could take place. The farmer and
manufacturer can no more live without profit, than
the labourer without wages. Their motive for ac*
cumulation will diminish with every diminution of
profit, and will cease altogether when their profits
are so low as not to afford them an adequate com-
pensation for their trouble, and the risk which they
must necessarily encounter in employing their ca-
pital productively.

I must, again observe, that the rate of profits
would fall much more rapidly than I have estimated
in my calculation : for the value of the produce
being what I have stated it under the circumstances
supposed, the value of the farmer's stock would be
greatly increased from its necessarily consisting of
many of the commodities which had risen in value.
Before com could rise from 4/. to 12/. his capital
would probably be doubled in exchangeable value,
and be worth 6000/. instead of SOOO/. If then his
profit were 180/*, or 6 per cent, on his .original ca*

124 ON PROFITS, fCHAP. VI.

J)ital, profits would not at that time be really at a
higher rate than 3 per cent ; for 6OOO/. at 3 per
cent, gives 180/. ; and on those terms only could a
new farmer with 6OOO/. money in his pocket enter
into the farming business.

Many trades would derive some advantage, more
or less, from the same source. The brewer, the
distiller, the clothier, the linen manufacturer, would
be partly compensated for the diminution o£ their
profits, by the rise in the value of their stock of
raw and finished materials ; but a manufacturer of
hardware, of jewellery, and of many other commo-
dities, as well as those whose capitals uniformly
consisted of money, would be subject to the whole
fall in the rate of profits, without any compensa-
tion whatever.

We should also expect that, however the rate of
the profits of stock might diminish in consequence
of the accumulation of capital on the land^ and the
rise of wages, yet that the aggregate amount of
profits would increase. Thus supposing that, with
repeated accumulations of 100,000/., the rate of
profit should fall from 20 to 19, to 18, to 1 7 per
cent., a constantly diminishing rate, we should ex-
pect that the whole amount of profits received by
those successive owners of capital would be always
progressive ; that it would be greater when the ca-
pital was 200,000/., than when 100,000/.; still
greater when 300,000/.; and so on, increasing,
though at a diminishing rate, with every increase

CHAP. VI.]| ON PROFITS^ 125

of capital. This progression however is only true
for a certain time : thus 19 per cent, on @00,OOOA
is more than 20 on 100,000/. ; again 18 per cent*
on 300,000/1 is more than 19 per cent, on 200,000/. j
but after capital has accumulated to a large amoimt,
and profits have fallen, the further accumulation
diminishes the aggregate of profits. Thus suppose
the accumulation should be 1,000,000/., and the
profits 7 pel* cent, the whole amount of profits will
be 70,000/. J now if an addition of 100,000/. capi-
tal be made to the million, and profits should fall
to 6 per cent., 66,000/. or a diminution of 4,000/,
will be received by the owners of stock, although
the whole amount of stock will be increased from
1,000,000/. to 1,100,000/.

There can, however, be no accumulation of ca<^
pital, so long as stock yields any profit at all, with*
out its yielding not only an increase of produce^
but an increase of value. By employing 100,000/*
additional capital, no part of the former capital
will be rendered less productive. The produce of
the land and labour of the country must increase,
and its value will be raised, not only by the value
of the addition which is made to the fonner quan-
tity of productions, but by the new value which is
given to the whole produce of the land, by the in-
creased difficulty of producing the last portion of
it. When the accumulation of capital, however^
becomes very great, notwitibstanding this increased
value^ it wilji be so distributed that a l^ss value

126 ON PROFITS. [chap. VI.

than before will be appropriated to pr(^ts» while
that which is devoted to rent and wages will be in-
creased. Thus with successive additions of lOOyOOOi^
to capital, with a fall in the rate of profits, from
30 to 19, to 18, to 17 per cent. &c. the produc-
tions annually obtained will increase in quantity,
and be of more than the whole additional value,
which the additional capital is calculated to pro-
duce. From S0,000/. it wiU rise to more than
39fOOOL and then to more than 57,000/. and when
the capital employed is a million, as we before
supposed, if 100,000/. more be added to it, and the
aggregate of profits is actually lower than before,
more than 6,000/. will nevertheless be added to
the revenue of the country, but it will be to the
revenue of the landlords and labourers ; they wiU
obtain more than the additional produce, and will
from their situation be enabled to encroach even
on the former gains of the capitalist Thus, sup-
pose the price of com to be 4/. per quarter, and
that therefore, as we before calculated, of eveiy
730/. remaining to the farmer afler payment of his
rent, 480/. were retained by him, and 240A were
paid to his labourers j when the price rose to 6L
per quarter, he would be obliged to pay his la-
bourers 300/. and retain only 420/. for profits : he
would be obliged to pay them 300/. to enable them
to consume the same quantity of necessaries as be-
fore, and no more. Now if the capital employed
were so large as to yield a hundred thousand times
720A or 72,000,000/. the aggregate of profits would

CHAP* Vl^i ON PROFITS. 127

be 48,000,000/. when wheat was at 4/. per quarter;
and if by employing a larger capital, 105,000 times
720/. were obtained when wheat was at 6A, or
75,600,000/:, profits would actually fall from
48,000,000/- to 44,100,000/. or 105,000 times 420/1,
and wages would rise from 24,000,000/. to
31,500,000/. Wages would rise because more la-
bourers would be employed, in proportion to capi-
tal ; and each labourer would receive more money
wages ; but the condition of the labourer, as we
have already shewn, would be worse, inasmuch as
he would be able to command a less quantity of
the produce of the coimtry. The only real gain-
ers would be the landlords ; they would receive
higher rents, first, because produce would be of a
higher value, and secondly, because they would
have a greatly increased proportion of that produce.

Although a greater value is produced, a greater
proportion of what remains of that value, afler pay-
ing rent, is consumed by the producers, and it is
this, and this alone, which regulates profits. Whilst
the land yields abundantly, wages may temporarily
rise, and the producers may consume more than
their- accustomed proportion; but the stimulus
which will thus be given to population, will speed-
ily reduce the labourers to their usual consump-
tion. But when poor lands are taken into culti-
vation, or when more capital and labour are ex-
pended on the old land, with a less return of pro-
duce, the efiect must be permanent, A greater

128 ON PROFITS, [chap. VI,

proportion of that part of the produce which re-
mains to be divided, after paying rent, between
the. owners of stock and the labourers, will be ap-
portioned to the latter* Each man may, and pro-
bably will, have a less absolute quantity ; but as
more labourers are employed in proportion to the
whole produce retained by the farmer, the value of
a greater proportion of the whole produce will be
absorbed by wages, and consequently the value of
a smaller proportion will be devoted to prc^ts.
This will necessarily be rendered permanent by the
laws of nature, which have limited the productive
powers of the land.

/ Thus we again arrive at the same conclusion
/ which we have before attempted to establish : —
that in all countries, and all times, profits depend
on the quantity of labour requisite to provide ne-
cessaries for the labourers, on that land or with
that capital which yields no rent. The effects then
of accumulation will be different in different coun-
tries, and will depend chiefly on the fertility of the
land. However extensive a country may be where
tlie land is of a poor quality, and where the im-
portation of food is prohibited, the most moderate
accumulations of capital will be attended with great
reductions in the rate of profit, and a rapid rise in
rent J and on the contrary a small but fertile coun-
try, particularly if it freely permits the importation
of food, may accumulate a large stock of capital
without any great diminution in the rate of profits.

CHAP- VI.]] ON PROFITS. Igjj

or any great increase in the rent of land. In the
Chapter on Wages, we have endeavoured to shew
lliat the money price of commodities would not be
raised by a rise of wages, either on the supposition
that gold, the standard of money, was the produce
of this country, or that it was imported from abroad.
But if it were otherwise, if the prices of commodi-
ties were permanently raised by high wages, the
proposition would not be less true, which asserts
that high wages invariably affect the employers of
labour, by depriving them of a portion of their real
profits. Supposing the hatter, the hosier, and the
shoemaker, each paid 10/. more wages in the ma-
nufacture of a particular quantity of their commo-
dities, and that the price of hats, stockings, and
shoes, rose by a sum sufficient to repay the manu- ^
facturer the 10/. ; their situation would be no bet-
ter than if no such rise took place. If the hosier
sold his stockings for 110/. instead of 100/., his
profits would be precisely the same money amount
as before ; but as he would obtain in exchange for
this equal sum, one tenth less of hats, shoes, and
every other commodity, and as he could with his
former amount of savings employ fewer labourers
at the increased wages, and purchase fewer raw
materials at the increased prices, he would be in
no better situation than if his money profits had
been really diminished in amount, and every thing
had remained at its former price. Thus then I
have endeavoured to shew, first, that a rise of
wages would not raise the price of commodities,

ISO ON PROFITS. [chap. VI,

but would invaiiably lower profits ; and secondly,
that if the prices of all commodities could be raised,
still the effect on profits would be the same ; and
that in fact the value of the medium only in which
prices and profits are estimated would be lowered.

CHAPTER VII.

ON FOREIGN TRADE.

No extension of foreign trade will immediately in-
crease the amount of value in a country, although
it will very powerfully contribute to increajse the
mass of commodities, and therefore the sum of en«>
joyments. As the value of all foreign goods is
measured by the quantity of the produce of our
land and labour, which is given in exchange for
them, we ^ould have no greater value, if by the
discoveiy of new markets, we obtained double the
quantity of foreign goods in exchange for a given
quantity of our's. If by the purchase of English
goods to the amount of 1000/1, a merchant can ob-
tain a quantity of foreign goods, which he can sell
in the English market for 1,200/., he will obtain
20 per cent, profit by such an employment of his
capital ; but neither his gains, nor the value of the
commodities imported, will be increased or dimi-
nished by the greater or smaller quantity of foreign
goods obtained. Whether, for example, he im-
ports twenty-five or fifty pipes of wine, his interest
can be no way aflfected, if at one time the twenty-
five pipes, and at another the fifty pipes, equally
sell for 1,200/. In either case his profit wiU be
limited to 200/., or 20 per cent, on his capital ;

K 2

132 ON FOREIGN TRADE. [^CHAP, VII.

and in eitjier case the same value will be imported
into England, If the fifty pipes sold for more
than 1,200/., the profits of this individual merchant
would exceed the general rate of profits, and ca^
pital would naturally flow into this advantageous
trade, till the fall of the price of wine had brought
every thing to the former level.

9 •

V ♦

It has indeed been contended, that the great
profits which are sometimes made by particular
merchants in foreign trade, will elevate the gene-
ral rate of profits in the country, and that the ab-
straction of capital from other employments, to
partake of the new and beneficial foreign com-
merce, will raise prices generally, and thereby in-
crease profits. It has been said, by high autho-
rity, that less capital being necessarily devoted to
the growth of com, to the manufacture of cloth,
hats, shoes, &c. while the demand continues the
same, the price of these commodities will be so
increased, that the farmer, hatter, clothier, and
shoemaker, will have an increase of profits, as well
as the foreign merchant*.

They who hold this argument agree with me,
that the profits of di£Perent employments have a
tendency to conform to one another ; to advance
and recede together. Our variance ccmsists in
this : They contend, that the equality of profits

* See Adam Smith, book i. chap. 9.

CHAP. VII.] ON FOREIGN TRADE. 133

will be brought about by the general rise of pro-
fits ; and I am of opinion, that the profits of the
favoured trade will speedily subside to the general
level-

For, first, I deny that less capital will necessa-
rily be devoted to the growth of com, to the ma-
nufacture of cloth, hats, shoes, &e. unless the
demand for these commodities be diminished;
and if so, their price will not rise. In the piu:-
chase of foreign commodities, either the same, a
larger, or a less portion of the produce of the land
and labour of England will be employed. If the
«ame portion be so employed, then will the same
demand exist for cloth, shoes, com, and hats, as
before, and the same portion of capital will be de-
voted to their production. If, in consequence of
the price of foreign commodities being cheaper, a
less portion of the annual produce of the land and
labour of England is employed in the purchase of
foreign commodities, more will remain for the pur-
chase of other things. If there be a greater de-
mand for hats, shoes, com, &c. than before, which
there may be, the consumers of foreign commo-
dities having an additional portion of their revenue
disposable, the capital is also disposable with which
the greater value of foreign commodities was be-
fi>re purchased ; so that with the increased demand
for com, shoes, &c. there exists also the means of
procuring an increased ^pply, and therefore nei-
ther prices nor profits can perraanently rise. If

lS4f ON POREIGM TRADE. [[CHAP. VII.

more of the produce of the land and labour of
England be employed in the purchase of foreign
commodities^ less can be employed in the purchase
of other things, and therefore fewer hats, shoes,
&c. will be required. At the same time that ca-
pital is liberated from the production of shoes,
hats, &c. more must be employed in manuifacturing
those commodities with which foreign commodities
are purchased ; and consequently in all cases the
demand for foreign and home commodities toge-
ther, as far as regards value, is limited by the
revenue and capital of the country. If one in-
creases, the other must diminish. If the quantity
of wine, imported in exchange for the same quan-
tity of English commodities, be doubled, the people
of England can either consume double the quan-
tity of wine that they did before, or the same
quantity of wine and a greater quantity of English
commodities. If my revenue had been 1000/.,
with which I purchased annually one pipe of wine
for 100/. and a certain quantity of English com-
modities fbr 900/. } when wine fell to 50/. per
pipe, I might lay out the 50/. saved, either in the
purchase of an additional pipe of wine, or in the
purchase of more English commodities. If I
bought more wine, and every wine-drinker did the
same, the foreign trade would not be in the least
disturbed ; the same quantity of English commo-
dities would be exported in exchange for wine,
and we should receive double the quantity, though
not double the value of wine. But if I, and

CHAP. VII.3 ON FOREIGN TRAD£. 135

others, contented ourselves with the same quantity
of wine as before, fewer English commodities
would be exported, and the wine-drinkers might
either consume the commodities which were be*
fbre exported, or any others for which they had
an inclination. The capital required for their pro-
duction would be supplied by the capital liberated
from the foreign trade-
There are two ways in which capital may be
accumulated: it may be saved either in conse-
quence of increased revenue, or of diminished
consumption. If my profits are raised from IQOOh
to 1200/. while my expenditure continues the same,
I accumulate annually iOOL more than I did be-
fore. If I save 200/. out of my expenditure, while
my profits continue the same, the same efiect will
be produced ; 200/. per annum will be added to
my capital. The merchant who imported wine
after profits had been raised from 20 per cent, to
40 per cent., instead of purchasing his English
goods for 1000/. must purchase them for 857/. ^s.
lOd.9 still selling the wine which he imports in re-
turn for those goods for 1200/. ; or, if he conti-
nued to purchase his English goods for 1000/. must
raise the price of his wine to 1400/. ; he would
thus obtain 40 instead of 20 per cent, profit on his
cs^ital ; but if, in consequence of the cheapness of
aU the commodities on which his revenue was ex-
pended, he and all other consumers could save the
value of 200/. out of every 1000/. they before ex-

136 ON FOREIGN TRADE. [CHAP. VII.

pended, they would more effectually add to the
real wealth of the country ; in one case, the sav-
ings would be made in consequence of an increase
of revenue, in the other, in consequence of di*
minished expenditure.

If, by the introduction of machinery, the gene*
rality of the commodities on which revenue was
expended fell 20 per cent, in value, I should be
enabled to save as effectually as if my revenue had
been raised 20 per cent. ; but in one- case the rate
of profits is stationary, in the other it is raised 20
per cent. — If, by the introduction of cheap foreign
goods, I can save 20 per cent, from my expendi-
ture, the effect will be precisely the same as if ma*
chinery had lowered the expense of their produq**
tion, but profits would not be raised.

It is not, therefore, in consequence of the ex*
tension of the market that the rate of profit is
raised, although such extension may be equally
efficacious in increasing the mass of commodities,
and may thereby enable us to augment the funds
destined for the maintenance of labour, and the
materials on which labour m?iy be employed. It i9
quite as important to the happiness of mankind,
that oiu: enjoyments should be inqre^ed by the
better distribution of labour, by each country pro-
ducing those commodities for which by its situation,
its climate, and its other natural or artificial ad-»
vantages, it is adapted, and by their exchanging

CHAP. Vll.] ON FOREIGN TRADE. 197

them for the commodities of other countries, as
that they should be augmented by a rise in the
rate of profits.

It has been my endeavour to shew throughout
this work, that the rate of profits can never be in-
creased but by a fall in wages, and that there can
be no permanent fall of wages but in consequence
of a fall of the necessaries on which wages are ex-
pended. If, therefore, by the extension of foreign
trade, or by improvements in machinery, the food
and necessaries of the labourer can be brought to
mai'ket, at a reduced price, profits will rise. If,
instead of growing our own com, or manufacturing
the clothing and other necessaries of the labourer,
we discover a new market from which we can sup-
ply ourselves with these commodities at a cheaper
price, wages will faU and profits rise ; but if the
commodities obtained at a cheaper rate, by the ex-
tension of foreign commerce, or by the improve-
ment of machinery, be exclusively the commodi-
ties consumed by the rich, no alteration will take
place in the rate of profits. The rate of wages
would not be affected, although wine, velvets, silks,
and other expensive commodities should fall 50
per cent., and consequently profits would continue
unaltered-

Foreign trade, then, though highly beneficial to
a country, as it increases the amount and variety
of the objects on which revenue may be expended,
and afibrds, by the abundance and cheapness of

.138 OS FOREIGN TRADE. [CHAP. VII.

commodities, incentives to saving, and to the ac-
cumulation of capital, has no tendency to raise the
profits of stock, unless the commodities imported
be of that description on which the wages of
labour are expended.

The remarks which have been made respecting
foreign trade, apply equally to home trade. Tlie
rate of profits is never increased by a better dis-
tribution of labour, by the invention of machinerj',
by the establishment of roads and canals, or by any
means of abridging labour either in the manufac-
ture or in the conveyance of goods. These are
causes which operate on price, and never fail to be
highly beneficial to consumers ; since they enable
them with the same labour, or with the value <^
the produce of the same labour, to obtain in ex-
change a greater quantity of the commodity to
which the improvement is applied ; but they
have no effect whatever on profit. On the other
hand, every diminution in the wages of labour
raises profits, but produces no effect on the price
of commodities. One is advantageous to all classes,
for all classes are consumers ; the other is benefi-
cial only to producers ; they gain more, but every
thing remains at its former price. In the first
case they get the same as before ; but every thing
on which their gains are expended, is diminished
in exchangeable value. i

The same rule which regulates tlie relative va*
lue of commodities in one country, does not regu-

CHAP, VII.J ON FOREIGN TRAD£« 139

late the relative value of the commodities ex*
changed between two or more countries.

Under a system of perfectly free commerce, each
country naturally devotes its capital and labour to
such employments as are most beneficial to each.
This pursuit of individual advantage is admirably
connected with the universal good of the whole.
By stimulating industry, by rewarding ingenuity,
and by using most efficaciously the peculiar powers
bestowed by nature, it distributes labour most effec-
tively and most economically : while, by increasing
the general mass of productions, it difiuses general
benefit, and binds together by one common tie of
interest and intercourse, the universal society of
nations throughout the civilized world. It is this
principle which determines that wine shall be
made in France and Portugal, that com shall be
grown in America and Poland, and that hard-
ware and other goods shall be manufactured in
England.

In one and tlie same country, profits are, gene-
rally speaking, always on the same level ; or differ
only as the employment of capital may be more or
less seciu*e and agreeable. It is not so between'
difiSbrent countries. If the profits of capital em-
ployed in Yorkshire, should exceed those of capi-
tal employed in London, capital would speedily
move from London to Yorkshire, and an equality
of profits would be effected ; but if in consequence

140 ON FOREIGN TRADE. [CHAP« VII.

of the diminished rate of production in the lands of
England, from the increase of capital and popula-
tion, wages should rise, and profits fall, it would
not follow that capital and population would neces-
sarily move from England to Holland, or Spain, or
Russia, where profits might be higher.

If Portugal had no commercial connexion with
other countries, instead of employing a great part
of her capital and industry in the production of
wines, with which she purchases for her own use
the doth and hardware of other countries, she
would be obliged to devote a part of that capital
to the manufacture of those commodities, which
she would thus obtain probably inferior in quality
as well as quantity.

The quantity of wine which- she shall give in ex-
change for the cloth of England, is not determined
by the respective quantities of labour devoted to
the production of each, as it would be, if both
commodities were manufactured in England, or
both in Portugal.

England may be so circumstanced, that to pro»
duce the cloth may require the labour of 100 men
for one year ; and if she attempted to make the
wine, it might require the labour of 120 men for
the same time. England would therefore find it
her interest to import wine, and to purchase it by
th^ exportation of cloth.

CHAP. VII.] ON FOREIGN TRADE. 141

To produce the /wine in Portugal, might require
only the labour of 80 men for one year, and to
produce the cloth in the same country, might re-
quire the labour of 90 men for the same time. It
would therefore be advantageous for her to export
wine in exchange for cloth. This exchange might
even take place, notwithstanding that the commo-
dity imported by Portugal could be produced there
with less labour than in England. Though she
could make the cloth with the labour of 90 men, she
would import it from a country where it required
the labour of 100 men to produce it, because it
would be advantageous to her rather to employ her
capital in the production of wine, for which she
would obtain more cloth from England, than she
could produce by diverting a portion of her capital
from the cultivation of vines to the manufacture of
doth.

Thus England would give the produce of the
labour of 100 men, for the produce of the labour of
80. Such an excHange could not take place be-
tween the individuals of the same country. The
labour of 100 Englishmen cannot be given for that
of 80 Englishmen, but the produce of the labour
of 100 Englishmen may be given for the produce
of the labour of 80 Portuguese, 60 Russians, or
120 East Indians. The difference in this respect,
between a single country and many, is easily ac-
counted for, by considering the difficulty with
which capital moves from one country to another,

14*2 ON FOREIGN TRADE, [CHAP. VII.

to seek a more profitable employment, and the ac-
tivity with which it invariably passes from one pro-
vince to another in the same country*.

It would undoubtedly be advantageous to the
capitalists of England, and to the consumers in
both countries, that under such circumstances, the
wine and the cloth should both be made in Portu-
gal, and therefore that the capital and labour of
England employed in making cloth, should be re-
moved to Portugal for that purpose. In that case^
the relative value of these commodities would be
regulated by the same principle, as if one were the
produce of Yorkshire, and the other of London :
and in every other case, if capital freely flowed to-
wards those countries where i|- could be most pro-
fitably employed, there could be no difference in
the rate of profit, and no other difference in the

* It will appear then, that a country posseMsing very oonsi-
derable advantages in machinery and skill, and which may
therefore be enabled to manufacture commodities with much
less labour than her neighbours, may* in return for such commo-
dities, import a portion of the corn required for its consump-
tion, even if its land were more fertile, and com could be grown
with less labour than in the country from which it was import-
ed. Two men can both make shoes and hats, and one is supe-
rior to the otlier in both employments ; but in making hats, he
can only exceed his competitor by one-fifth or 20 per cent., and
in making shoes he can excel him by one-third or S3 per cent. ;
— will it not be for the interest of both, that the superior mmi
should employ himself exclusively in making shoes, and the in-
ferior man in making hats?

CHAP. Vn.] ON FOREIGN TRADE. 143

real or Idbour price of commodities, than the addi-
tional quantity of labour required to convey tiiem
to the various' markets where they were to be sold.

Experience, however, shews, that the fancied or
real insecurity of capital, when not under the im-
mediate control of its owner, together with the na-
tural disinclination which every man has to quit
the country of his birth and connexions, and in-
trust himself with all his habits fixed, to a strange
government and new laws, check the emigration
of capital. These feeMngs, which I should be
sorry to see weakened, induce most men of pro-
perty to be satisfied with a low rate of profits in
their own country, rather than seek a more advan-
tageous employment for their wealth in foreign
nations.

Gold and silver having been chosen for the ge-
neral me^um of circulation, they are, by the com-
petition of commerce, distributed in such propor-
tions amongst the different countries of the world,
as to accommodate themselves to the natural traf-
fic which would take place if no such metals exist-
ed, and the trade between countries were purely a
trade of barter.

^ Thus, cloth cannot be imported into Portugal,
unless it sell there for more gold than it cost in the
country from which it was imported ; and wine
cannot be imported into England, unless it will

144 ON FOREIGK TRADE. [cHAP. \\t.

sell for more there than it cost in Portugal. If the
trade were purely a trade of barter, it coidd only
continue whilst England could make cloth so cheap
as to obtain a greater quantity of wine with a given
quantity of labour, by manufacturing cloth than
by growing vines ; and also whilst the industry of
Portugal were attended by the reverse effects.
Now suppose England to discover a process for
making wine, so that it should become her inte-
rest rather to grow it than import it ; she would
naturally divert a portion of her capital from the
foreign trade to the home *trade ; she would cease
to manufacture cloth for exportation, and would
grow wine for herself. The money price of these
commodities would be regulated accordingly ; wine
would fall here while cloth continued at its former
price, and in Portugal no alteration would take
place in the price of either commodity. Cloth
would continue for some time to be exported from
this country, because its price would continue to
be higher in Portugal than here; but money in-
stead of wine woidd be given in exchange for it,
till the accumulation of money here, and its dimi-
nution abroad, should so operate on the relative
value of cloth in the two countries, that it would
cease to be profitable to export it. If the improve-
ment in making wine were of a very important de-
scription, it might become profitable for the two
countries to exchange employments ; for England
to make all the wine, and Portugal all the doth
consumed by them ; but this could be effected only

CHAP. VII.] ON FOREIGN TRADE. 14S

by a new distribution of the precious metals, which
should raise the price of doth in England, and
lower it in Portugal. The relative price of wine
would fall in England in consequence of the real
advantage from the improvement of its manu-
facture; that is to say, its natural price would
fall ; the relative price of cloth would rise there
from the accumulation of money.

Thus, suppose before the improvement in making
wine in England, the price of wine here were 50L
per pipe, and the price of a certain quantity of
cloth were 45/., whilst in Portugal the price of the
same quantity of wine was 45/., and that of the
same quantity of cloth 50/. ; wine would be ex-
ported from Portugal with a profit of 5L and cloth
from England with a profit of the same amount.

Suppose that, afler the improvement, wine falls
to 4f5L in England, the cloth continuing at the
same price. Every transaction in commerce is an
independent transaction. Whilst a merchant can
buy cloth in England -for 45/. and sell it with the
usual profit in Portugal, he Mrill continue to export
it from England. His business is simply to pur-
chase English cloth, and to pay for it by a bill of
exchange, which he purchases with Portuguese
money. It is to him of no importance what be-
comes of this money : he has discharged his debt
by the remittance of the bill. His transactioa is
undoubtedly regulated by the terms on which he

146 ON FOEEION TRADE. [CHAP. VIL

can obtain this bill, but they are known to him at
the time ; and the causes which may influence the
market price of bUls, or the rate of exchange, is no
consideration of his.

If the markets be favourable for the exportation
of wine from Portugal to England, the exporter of
the wine will be a seller of a bill» which will be
purchased either by the importer of the cloth, or
by the person who sold him his bill; and thus
without the necessity of money passing from eitlier
country, the exporters in each country will be paid
for their goods* Without having any direct trans-
action with each other, the money paid in Portu-
gal by the importer of cloth will be paid to the
Portuguese exporter of wine ; and in England by
the negotiation of the same bill, the exporter of
the cloth win be authorized to receive its value
from the importer of wine.

But if the prices of wine were such that no wine
could be exported to England, the importer of
cloth would equally purchase a bill ; but the price
of that bill would be higher, from the knowledge
which the seller of it would possess, that there was
no counter bill in the market by which he could
ultimately settle the transactions between the two
countries ; he might know that the gold or silver
money which he received in exchange for his bill*
must be actually exported to his correspondent in
England, to enable him to pay the demand which

CHAP. Vn.} ON rORElON TRADE. 147

he had authorized to be made upon him, and he
m^ht therefore charge in the price of his bill all
the expenses to be incurred, together with his fair
and usual profit.

If then this premium for a bill on England
should be equal to the profit on importing cloth,
the importation would of course cease ; but if the
premium on the bill were only 2 per cent., if to be
enabled to pay a debt in England of 100/1, 102^
should be paid in Portugal, whilst cloth which cost
4f5L would sell for 50£, cloth would be imported,
bills would be bought, and money would be ex*
ported, till the diminution of money in Portugal,
and its accumulation in England, had produced
such a state of prices as would make it no longer
prc^table to continue these transactions^

But the diminution of money in one country,
and its increase in another, do not operate on the
price of one commodity only, but on the prices of
all, and therefore thf price of wine and cloth will
be both raised in England, and both lowered in
Portugal. The price of cloth, from being 4f5L in
one country and dOL in the other, would probably
fall to 4f9L or 48/. in Portugal, and rise to 46/. or
471. in England, and not affi)rd a sufficient profit
a^r paying a premium for a bill to induce any
merchant to^ import that commodity.

It is thus that the money of each country is ap*

148 ON FOREIGN TRADE. [CHAP. VII.

portioned to it in such quantities only as may be
necessary to regulate a profitable trade of barter-
England exported cloth in exchange for wine, be-
cause, by so doing, her industry was rendered
more productive to her ; she had more doth and
wine than if she had manufactured both for her-
self; and Portugal imported cloth and exported
wine, because the industry of Portugal could be
more beneficially employed for both countries in
producing wine. Let there be more difficulty ,in
England in producing cloth, or in Portugal in
producing wine, or let there be more facility in
England in producing wine, or in Portugal in
producing cloth, and the trade must unmediately
cease.

No change whatever takes place in the circum-
stances of Portugal ; but England finds that she
can employ her labour more productively in the
manufacture of wine, and instantly the trade of
barter between the two countries changes. Not
only is the exportation of wine from Portugal
stopped, but a new distribution of the precious
metals takes place, and her importation of doth is
also prevented.

Both countries would probaUy ^d it their in-
terest to make their own wine and their own cloth ;
but this singular result would take place : in £<ng-
land, though wine would be cheaper, cloth would
be devated in price, more would be paid for it by

CHAP. VII.] ON FOREIGN TRADE. 149

the consumer; while in Portugal the consumers,
both of cloth and of wine, would be able to pur*
chase those commodities cheaper. In the country
where the improvement was made, prices would
be enhanced ; in that where no change had taken
place, but where they had been deprived of a
profitable branch of foreign trade, prices would
fall.

This, however, is only a seeming advantage to
Portugal, for the quantity of cloth and wine toge-
ther produced in that country would be diminished,
while the quantity produced in England would be
increased. Money would in some degree have
changed its value in the two countries it would
be lowered in England and raised in Portugal.
Estimated in money, the whole revenue of Portu-
gal would be diminished ; estimated in the same
medium, the whole revenue of England would be
increased.

Thus then it appears, that the improvement of
a manufacture in any country tends to alter the
distribution of the precious metals amongst . the
nations of the world : it tends to increase the quan-
tity of commodities, at the same time that it raises
general prices in the country where the improve-
ment takes place.

To simplify the question, I have been supposing
.the trade between two countries to be, confined to

150 ON FOREIGN TBADE. ^CHAP. VII.

two commodities — to wine and cloth; but it is
well knoMrn that many and various articles ^iter
into the list of exports and imports* By the ab-
straction of money from one country, and the ac-
cumulation of it in another, all commodities are
affected in price, and consequently encouragement
is given to the exportation of many more commo-
dities besides money, which will therefore prevent
so great an effect from taking place on the value of
money ia the two countries as might otherwise be
expected.

Beside tlie improvements in arts and macliinery,
there are various other causes which are constantly
operating on the natural course of trade, and which
interfere with the equilibrium, and the relative
value of money. Bounties on exportation or im->
portation, new taxes on commodities, sometimes
by their direct, and at other times by their indi«-
rect operation, disturb the natural trade of barter,
and produce a consequent necessity of importing
or exporting money, in order that prices may be
accommodated to the natural course of commerce ;
and this effect is produced not only in the country
where the disturbing cause takes pl^ce, but, in a
greater or less degree, in every countiy of the
commercial worlds

This will in some measure account for the dif-
ferent value of money in different countries ; it
will explain to us why the prices of home commo-

CHAP. VII.3 OK FORCION TRADE. 151

dities, and those of great bulk, thou^ of com-
paratively small value, are, independently of other
causes, higher in those countries where manu&c-
tures flourish. Of two countries having precisely
the same population, and the same quantity of land
of equal fertility in cultivation, with llie same
knowledge too of agriculture, the prices of raw
produce will be highest in that where the greater
skill, and the better machinery is used in the ma-
nufiicture of exportable commodities. The rate
of profits will probably difier but little ; for wages,
or the* real reward of the labourer, may be the
same in both ; but those wages, as well as raw pro*
duce» will be rated higher in money in that coun«
try, into which, from the advantages attending
their skill and machinery, an abundance of money
is imported in exchange for their goods.

Of these two countries, if one had the advan-
tage in the manufacture of goods of one quaUty,
and the other in the manufacture of goods of ano-
ther quality, there would be no decided influx of
the precious metals into either ; but if the advan-
tage very heavily preponderated in favour of either,
that ^ect would be inevitable.

In the former part of this work, we have assumed,
for the purpose of argument, that money always
continued of the same value ; we are now endea-
vouring to shew that besides the ordinary variations
in the value of money, and those which are com-

158 ON FOREIGN TRADE. [cfifAP. VH^

mon to the whole commercial world, there are also
partial variations to which money is subject in par-
ticular countries j and to fact, that the value of
money is never the same in any two countries, de-
pending as it does on relative taxation, on manu-
facturing skill, on the advantages of climate, na-
tural productions, and many other causes.

Although, however, money is subject to such
perpetual variations, and consequently the prices
of the commodities which are -common to most
countries, are also subject to considerable differ-
ence, yet no effect will be produced on the rate of
profits, either from the influx or efflux of money.
Capital will not be increased, because the circu-
lating medium is augmented. If the rent paid by
the farmer to his landlord, and the wages to his
labourers, be 20 per cent, higher in one country
than another, and if at the same time the nominal
value of the farmer's capital be 20 per cent, more,
he will receive precisely the same rate of profits,
although he should sell his raw produce 20 per
cent, higher.

Profits, it cannot be too often repeated, depend
on wages ; not on nominal, but real wages ; not on
file number of poimds that may be annually paid to
the labourer, but on the number of days' work, ne-
cessary to obtain those pounds. Wages may there-
fore be precisely the same in two countries ; they
may bear too the same proportion to rent, and to

CHAP. VII.3 ON FOREIGN TRADE. 168

the whole produce obtained from the land, although
in one of those countries the labourer should re^
ceive ten shillings per week, and in die other
twelve.

In the early states of society, when manufactures
have made Uttle progress, and the produce of all
countries is nearly similar, consisting of the bulky
and most useful commodities, the value of money
in different countries will be chiefly regulated by
their distance from the mines which supply the
precious metals ; but as the arts and improvements
of society advance, and different nations excel in
particular manufactures, although distance will still
enter into the calculation, the value of the precious
metals will be chiefly regulated by the superiority
of those manufactures.

Suppose all nations to produce corn, cattle, and
coarse clothing only, and that it was by the ex-
portation of such commodities that gold could be
obtained from the countries which produced them,
or from those who held thiem in subjection ; gold
would naturally be of greater exchangeable value
in Poland than in England, on account of the
greater expense of sending such a bulky commo-
dity as com the more distant voyage, and also the
greater expense attending the conveying of gold to
Poland.

This difference in the value of gold, or which is

154 ON FORBION TRA0£» [^CUAP. VH.

the same thing, this difference in the price of c<xti
in the two countries, would exist, although the fadr
lities of producing com in £ngland should far ex-
ceed those of Poland, from the greater fertility c^
the land, and the superiority in the skill and imple-
ments of the labourer.

If however Poland should be the first to improve
her manufactures, if she should succeed in making
a coipmodity which was generally desirable, in-
cluding great value in little bulk, or if she should
be exclusively blessed with some natural produc-
tion, generally desirable, and not possessed by other
countries, she would obtain an additional quantity
of gold in exchange for this commodity, which
would operate on the price of her com, cattle, and
coarse clothing. The disadvantage of distance
would probably be more than compensated by the
advantage of having an exportable commodity of
great value, and money would be permanently of
lower value in Poland than in England. If, on the
contrary, the advantage of skill and machinery
were possessed by England, another reason would
foe added to that which before existed, why gold
should be less valuable in England than in Poland,
and why com, cattle, and clothing, should be at a
higher price in the former country.

\ These I believe to be the only two causes which

regulate the comparative value of money in the

. different countries of the world ; for although tax-

CHAP. VIlO ^^ FOREIGN TRADE. l55

ation occasions a disturbance of the equilibrium of
money, it does so by depriving the country in
which it is imposed of some of the advantages at-
tending skill, industry, and climate.

It has been my endeavour carefully to distinguish
between a low value of money, and a high value
of com, or any other commodity with which money
may be compared. These have been generally con-
sidered as meaning the same thing ; but it is evi«
dent, that when com rises from five to ten shillings
a bushel, it may be owing either to a fall in the
value of money, or to a rise in the value of com.
Thus we have seen, that from the necessity of hav-
ing recourse successively to land of a worse and
worse quality, in order to feed an increasing popula-
tion, com must rise in relative value to other things.
If therefore money continue permanently of the
same value, com will exchange for more of such
money, that is to say, it will rise in price. The
same rise in the price of com will be produced by
such improvement of machinery in manufactures,
as shall enable us to manufacture commodities with
peculiar advantages : for the influx of money will
be the consequence ; it will fall in value, and there-
fore exchange for less com. But the effects result-
ing firom a high price of com when produced by the
rise in the value of com, and when caused by a Ml
in the value of money, are totally different. In
both cases the money price of wages will rise, but
if it be in consequence of the fall in the value of

156 ON FOREIGN TRADE. [CHAP. VII.

mone j» not only wages and com, but all other com-
modities will rise. If die manufacturer has more
to pay for wages, he will receive more for his ma-
nufactured goods, and the rate of profits will re-
main unaffected. But when the rise in the price
of com is the effect of the diiOSculty of production,
profits will fall ; for the manufacturer will be ob-
liged to pay more wages, and will not be enabled
to remunerate himself by raising the price of his
manufactured commodity.

Any improvement in the facility of working the
mines, by which the precious metals may be pro-
duced with a less quantity of labour, will sink the
value of money generally. It will then exchange
for fewer commodities in all countries ; but when
any particular country excels in manufactures, so
as to occasion an influx of money towards it, the
value of money will be lower, and the prices of
com and labour will be relatively higher in that
country, than in any other.

This higher value of money will not be indicated
by the exchange ; bills may continue to be nego-
ciated at par, although the prices of com and la-
bour should be 10, 20, or SO per cent, higher in
one country than another. Under die circum-
stances supposed, such a difference of prices is the
natural order of things, and the exchange can only
be at par, when a sufficient quantity of money is
introduced into the country excelling in manufac-

CHAP. VII.] ON FOREIGN TRADE. 157

tures, so as to raise the price of its com and labour.
If foreign countries should prohibit the exportation
of money, and could successfully enforce obedi-
ence to such a law,, they might indeed prevent the
rise in the prices of the com and labour of the ma*
nufacturing country ; for such rise can only take
place after the influx of the precious metals, sup-
posing paper money not to be used ; but they could
not prevent the exchange from being very unfa-
vourable to them. If England were the manufac-
turing country, and it were possible to prevent the "
importation of money, the exchange with France,
Holland, and Spain, might be 5, 10, or 20 per
cent, against those countries.

Whenever the current of money is forcibly stop-
ped, and when money is prevented from settling
at its just level, there are no limits to the possible
variations of the exchange. The effects are similar
to those which follow. When a paper money, not
exchangeable for specie at the will of the holder is
forced into circulation. Such a currency is neces-
sarily confined to the country where it is issued : it
cannot, when too abulndant, difiuse itself generally
amongst other countries. The level of circulation
is destroyed, and the exchange will inevitably be
unfavourable to the country where it is excessive in
quantity : just so would be the effects of a metallic
circulation, if by forcible means, by laws which
could not be evaded, money should be detained in

158 ON FOREIGN TRADE. [CHAP. VH.

a country^when the stream of trade gave it an im*
petus towards other countries.

When each country has precisely tlie quantity
of money which it ought to have, money will net
indeed be of the same value in each, for with re-
spect to many commodities it may diiSer 5, 1 0, or
even SO per cent., but the exchange will be at par.
One hundred pounds in England, or the silver
which is in 100/. will purchase a bill of 100/L, or
an equal quantity of silver in France, Spain, or
Holland.

In speaking of the exchange and the compara-
tive value of money in different countries, we must
not in the least refer to the value of money esti-
mated in commodities, in either country. The
exchange is never ascertained by estimating the
comparative value of money in com, cloth, or any
commodity whatever, but by estimating the value
of the currency of one country, in the currency of
another.

It may also be ascertained by comparing it with
some standard common to both countries. If a
bill on England for 100/. will purchase the same
' quantity of goods in France or Spain, that a bill
on Hamburgh for the same mm will do, the ex-
change between Hamburgh and England is at par;
but if a bill on England for 130/., will purchase

■ A

CHAP, yil.3 OK FOREIGN TRADE. 159

no more than a bill on Hamburgh for 100/., the
exchange is 30 per cent, against England.

In England lOOL may purchase a bill, or the
right of receiving 1012. in Holland, 102/. in France,
and 105/. in Spain. Hie exchange with England
is, in that case, said to be 1 per cent, against Hol-
land, 2 per cent, against France, and 5 per cent,
agsdnst Spain. It indicates that the level of cur-
rency is higher than it should be in those coun-
tries, and the comparative value of their curren-
cies, and that of England, would be immediately
restored to par, by abstracting from theirs, or by
adding to that of England.

Those who maintained that our currency was
depreciated during the last ten years, when the
exchange varied from SO to SO per cent, against
this country, have never contended, as they have
been accused of doing, that m<mey could not be
more valuable in one country than another, as
compared with various commodities ; but they did
contend, that ISO/L could not be detained in Eng-
land^ unless it was depreciated, when it was of no
more vahie, estimated in the money of Hamburgh,
or of Holland, than the bullion in lOOL

By sending ISO/, good English pounds sterling
to Hamburgh^ even at an expense of 5/., I should
be possessed there of 125iL; what then could make
me. consent to give 130/. for a bill which ^w^wld

160 ON FOREIGN TRAI>£« [cHAP. VIU

give me 100/. in Hamburgh, but that my pounds
were not good pounds sterling ?— they were dete-
riorated, were degraded in intrinsic value below
the pounds steiiing of Hamburgh, and if actually
sent there, at an expense of 5/1, would sell only
for 100/. With metallic pounds sterling, it is not
denied that my 180/. would procure me 125^ in
Hambiu-gh, but with paper pounds sterling I can
only obtain 100/. ; and yet it was maintained that
130/. in paper, was of equal value with 130L in
silver or gold.

Some indeed more reasonably maintained, that
ISO/, in paper was not of equal value with 130/. in
metallic money; but they said that it was the me-
tallic money which had changed its value, and not
the paper money. They wished to confine the
meaning of the word depreciation to an actual fall
of value, and not to a comparative difference be-
tween the value of money, and the standard by
which by law it is regulated. One hundred pounds
of English money was formerly of equal value with,
and could purchase lOOL of Hamburgh money : in
any other country a bill of 100/. on England, or
on Hamburgh, could purchase precisely the same
quantity of commodities. To obtain the same
things, I was lately obliged to give 130L English
money, when Hamburgh could obtain them for
100/. Hamburgh money. If English money was
of the same value then as before, Hamburgh mo-
ney must have risen in value. But where is the

CHAP. VII.] ON FOREIGN TRADE* l6l

proof of this? How is it to be ascertained whether
English money has fallen, or Hamburgh money
has risen ? there is no standard by which this can
be determined. It is a plea which admits of no
proof, and can neither be positively affirmed, nor
positively contradicted* The nations of the world
must have been early convinced, that there was no
standard of value in nature, to which they might
unerringly refer, and therefore chose a medium,
which on the whole appeared to them less variable
than any other commodity.

To this standard we must conform tiU the law
is changed, and till some other commodity is dis-
covered, by the use of which we shall obtain a
more perfect standard, than that which we have
established. While gold is exclusively tlie stan-
dard in this country, money will be depreciated,
when a pound sterling is not of equal value with
6 dwts. and 3 grs. of standard gold, and tliat, whe-
ther gold rises or falls in general value.

CFIAPTER VIII.

ON TAXES.

Taxes are a portion of the produce of the land
and labour of a country, placed at the disposal of
the government ; and are always ultunately paid,
either from the capital, or from the revenue of the
country.

We have already shewn how the capital of a
country is either fixed or circulating, according
as it is of a more or of a less durable nature. It is
diMcult to define strictly, where the distinction
between circulating and fixed capital begins ; for
there are almost infinite degrees in the durability
of capital. The food of a country is consumed
and reproduced at least once in every year ; the
clothing of the labourer is probably not consumed
and reproduced in less than two years ; whilst his
house and furniture are calculated to endure for a
period of ten or twenty years.

When the annual productions of a country more
than replace its annual consumption, it is said to
increase its capital ; when its annual consumption
is not at least replaced by its annual production, it

CHAP. VIII.3 ON TAXES. J^

is said to diminish its capital. Capital may there,
fore be increased by an increased production, or
by a diminished unproductive consumption.

If the consumption of the government, when
increased by the levy of additional taxes, be met
either by an increased production, or by a dimi-
nished consumption on the part of the people, the
taxes will fall upon revenue, and the national
capital will remain unimpaired ; but if there be no
increased production or diminished unproductive
consumption on the part of the people, the taxes
will necessarily fall on capital, that is to say, they
will impair the fund allotted to productive con*
sumption*.

In proportion as the capital of a country is
diminished, its productions will be necessarily
diminished ; and, therefore, if the same unproduc-
tive expenditure on the part of the people and of

* It must be understood that all the productions of a country
are consumed ; but it makes the greatest difference imaginable
whether they are consumed by those who reproduce, or by
those who do not reproduce another value. When we say thaf
revenue is saved, and added to capital, what we mean is, that
the portion of revenue, so said to be added to capital, is con-
sumed by pnoduetive instead of unproductive labourers. There
oan be no greater error than in supposing that capital is increas-
ed by non-consumption. If the price of labour should rise so
high, that notwithstanding the increase of capital, no more
could be employed, I should say that such increase of capital
would be still unproductivdy consumed. .

jg4i ON TAXES. [^CHAP. VHT.

the government continue, with a constantly di-
minishing annual reproduction, the rescources of
the people and the state will fall away with in-
creasing rapidity, and distress and ruin will follow.

Notwithstanding the immense expenditure of
the English government during the last twenty
years, there can be little doubt but that the in-
creased production on the part of the people has
more than compensated for it. The national capi-
tal has not merely been unimpaired, it has been
greatly increased, and the annual revenue of the
people, even after the payment of their taxes, is
probably greater at the present time than at any
former period of our history.

For the proof of this we might refer to the in-
crease of population — to the extension of agri-
culture — to the increase of shipping and manu-
factures — to the building of docks — to the open-
ing of numerous canals, as well as to many other
expensive undertakings ; all denoting ah increase
both of capital and of annual production.

Still, however, it is certain that but for taxation
this increase of capital would have been much
greater. There are no taxes which have not a
tendency to lessen the power to accumulate. All
taxes must either fall on capital or revenue. If
they encroach on capital, they must proportionably
diminish that fund by whose extent the extent of

CHAP. VIII, "I ON TAXBS. l65

the productive industry of the country must
always be regulated ; and if they fall on revenue,
they must either lessen accumulation, or force the
contributors to save the amount of the tax, by
making a corresponding diminution of their former
unproductive consumption of the necessaries and
luxuries of life. Some taxes will produce these
effects in a much greater degree than others ; but
the great evil of taxation is to be founds not so
much in any selection of its objects, as in the
general amount of its efiects taken coUectively.

Taxes are not necessarily taxes on capital, be-
cause they are laid on capital ; nor on income, be-
cause they are laid on income. If from my income
of 10002. per annum, I am required to pay lOOl^
it will really be a tax on my income, should I be
c<Hitent with the expenditure of the remaining
900L ; but it will be a tax on capital, if I continue
to spend 1000/.

The capital from which my income of 1000/. is
-derived, may be of the value of 10,000/. ; a tax erf*
one per cent, on such capital would be 100/. ; but
my capital would be unaffected, if after pa3ring
this tax, I in like manner contented myself with
the expenditure of 900/.

' The desire which every man has to keep his
station in life, and to maintain his wealth at the
height which it has once attained, occasions, most
taxes, whether laid on capital or on income, to be

166 ON TAXES. [chap. VIU.

paid from income ; and therefore as taxation pro*
ceeds, or as government increases its expenditure^
the annual enjoyments of the people must be di*
minished, unless they are enabled proportionally
to increase their capitals and income. It should
be the policy of governments to encourage a dis^
position to do this in the people, and never to lay
such taxes as will inevitably fall on capital ; sines
by so doing) they impair the funds for the main-
tenance of labour, and thereby diminish the future
production of the country.

In England this poUcy has been neglected, in
taxing the probates of wills, in the Ifsgacy duty,
and in all taxes affecting the transference of pro-
perty from the dead to the Hving; If a legacy of
1000^ be subject to a tax of 100/L, the l^atee
considers his l^;acy as only 900/. and feels no par-
ticular motive to save the 100/. duty from his ex-
penditure, and thus the capital of the country is
diminished ; but if he had really received lOOOil,
and had been required to pay 100^ as a tax on in-
come, on wine, on horses, or on servants, he would
probably have diminished, or rather not increased
his expenditure by that sum, and the capital of
the country would have been unimpaired.

" Taxes upon the transference of property from
the dead to the living," says Adam Smitli, " fall
finally, as well as immediately, upon the persons to
whom the property is transfixed. Taxes on the

CHAP. Vin.3 ON TAXES. l&J

sale of land fall altogether upon the seller. The
seller is almost always under the necessity of sel-
ling, and must,therefore» take such a. price as he
can get. The buyer is scarce ever under the ne-
cessity of buying, and will, therefore, only give
such a price as he likes. He considers what the
land will cost him in tax and price together. The
. more he is obliged to pay in the way of tax, the
less he will be disposed to give in the way of price.
Such taxes, therefore, fall almost always upon a
necessitous person, and must, therefore, be very
cruel and oppressive." '* Stamp duties, and duties
upon the registration of bonds and contracts for
borrowed money, fall altogether upon the borrower,
and in fact are always paid by him. Duties of
the same kind upon law proceedings fall upon the
suitors. They reduce to both the capital value of
the subject in dispute. The more it costs to ac«
quire any property, the less must be the neat value
of it when acquired. All taxes upon the trans-
ference of property of every kind, so far as they
diminish the capital value of that property, tend to
diminish the funds destined for the maintenance of
labour. They are all more or less unthrifty taxes,
that increase the revenue of the sovereign, which
seldom maintains any but unproductive labourers,
at the expense of the capital of the people, which
maintains none but productive."

But this is not the only objection to taxes on
the transference of property j they prevent the

168 OK TAXES. [chap. VIII.

national capital from being distributed in tlie way
most beneficial to the community. For the general
prosperity, there cannot be too much facility given
to the conveyance and exchange of all kinds of
property, as it is by such means that capital of
every species is likely to find its way into the hands
of those, who will best employ it in increasing the
productions g£ the country. *• Why," asks M.
Say, ** does an individual wish to sell his land? it
is because he has another employment in view in
which his funds will be more productive. Why
does another wish to purchase this same land ? it
is to employ a capital which brings him in too
littie, which was unemployed, or the use of which
he thinks susceptible of improvement. This ex-
change will increase the general income, since it
increases the income of these parties. But if the
charges are so exorbitant as to prevent the ex-
change, they are an obstacle to this increase of
the general income.'* Those taxes, however, are
easily collected ; and this by many may be thought
to afford some compensation for their injurious
effects.

CHAPTER IX

TAXES ON RAW PRODUCE.

Having in a former part of this work established,
I hope satisfactorily, the principle, that the price
of com is regulated by the cost of its production
on that land exclusively, or rather with that capital
exclusively, which pays no rent, it will follow that
whatever may increase the cost of production will
increase the price; whatever mfly reduce it, will
lower the price. The necessity of cultivating
poorer land, or of obtaining a less return with a
given additional capital on land already in cultiva-
tion, will inevitably raise the exchangeable value
of raw produce. The discovery of machinery,
which will enable the cultivator to obtain his com
at a less cost of production, will necessarily lower
its exchangeable value. Any tax which may be
imposed on the cultivator, whether in the shape
of land-tax, tithes, or a tax on the produce when
obtained, will increase the cost of production, and
will therefore raise the price of raw produce.

If the price of raw produce did not rise so as to
compensate the cultivator for the tax, he would
naturally quit a trade where his profits were re-

170 TAXES ON RAW PRODUCE. [CHAP. IX.

duced below the general level of profits ; this
would occasion a diminution of supply, until the
unabated demand should have produced such a
rise in the price of raw produce, as to make the
cultivation of it equally profitable with the invest-
ment of capital in any other trade.

A rise of price is the only means by which he
coidd pay the tax, and continue to derive the
usual and general profits from this employment of
his capital. He could not deduct the tax from
his rent, and oblige his landlord to pay it, for he
pays no rent. He would not deduct it from his
profits, for there is no reason why he should con-
tinue in an emplo}Tnent which yields small profits,
when all other employments are yielding greater.
There can then be no question, but that he ^vill
have the power of raising the price of raw produce
by a sum equal to the tax.

A tax on raw produce would not be paid by
the landlord ; it would not be paid by the farmer;
but it woidd be paid, in an increased price, by the
consumer.

Rent, it should be remembered, is the difierencc
between the produce obtained by equal portions rf
labour and capital employed on land of the same
or different qualities. It should be remembwed
too, that the money rent of land, and the com rent
of land, do not vary in the same proportion.

CHAP. IX.3 TAXES ON RAW PRODUCS. I7I

In the case of a tax on raw produce, of a land-
tax, or tithes, the com rent of land will vary,
while the money rent will remain as before.

If, as we have before supposed, the land in cul-
tivation were of three qualities, and that with an
equal amount of capital,

180 qrs. of com were obtained from land No. 1.

170 ..... from 2.

160 from 3.

the rent of No. 1 would be 20 quarters, the dif-
ference between that of No. 3 and No. 1 ; and of
No. 2, 10 quarters, the difference between that of
No. 3 and No. 2 ; while No. 3 would pay no rent
whatever.

Now if the price of corn were 4/. per quarter,
the money rent of No. 1 would be 80/., and that of
No. 2, 40/.

Suppose a tax of 8^. per quarter to be imposed
on com ; then the price would rise to 4/. 8^. ; and
if the landlords obtained the same com rent as be-
fore, the rent of No. 1 would be 88/. and that of
No. 2, 4AL But they would not obtain the same
com rent; the tax would fall heavier on No». 1
than on No. 2, and on No. 2 than on No. 3, be-
cause it would be levied on a greater quantity' of
com. It is the difficulty of production on No. 3
which regulates price; and com rises to 4£ 8^^

172 TAXES ON RAW PRODUCE. [CHAP. IX.

that the profits of the capital employed on No. 8
may be on a level with the general profits of stock.

The produce and tax on the three qualities of
land will be as follows:

No. 1, yielding 180 qra. at 4/. 8^. per qr. • • • £792
Deduct the value of 16.3 or 8^. per qr. on 180 qrs. . 72

Net com produce 163.7 Net money produce £ 720

No. 2, yielding 170 qrs. at 4^. 8«. per qr. . • . £liS

Deduct the value of 15.4 { ^"- ^' t^' ^'' ^^ ^'' ^^' '^'' I 68

l on 170 qra )

Net corn produce 154.6 Net money produce j£ 680

No. 3, yielding 160 qra. at 4/. 8« £704

Deduct the value of 14.5 j^''^' *^' *^' ^'- ^' ^' ^' ^'- } 64

I on 160 • ..... 3

Net corn produce 145.5 Net money produce £640

The money rent of No. 1 would continue to be
80/., or the difference between 640/1 and 720A;
an d that of No. 2, 40/., or the difference between
6i*0L and 680/., precisely the same as before ; but
the corn rent will be reduced from 20 quarters on
Noo 1, to 18.2 quarters, the difference between
145-5 and 163.7 quarters, and that on No. 2 from
10 to 9*1 quarters, the difference between 145.5
and 154.6 quarters*

CHAP. IX.3 TAXES ON RAW PRODUCE. 173

A tax on corn, then, would fall on the con-
sumers of com, and would raise its value as com*
pared with all other commodities, in a degree pro-
portioned to the tax. In proportion as raw pro-
duce entered into the composition of other commo-
dities, would their value also be raised, unless the
tax were countervailed by other causes. They
would in fact be indirectly taxed, and their value
would rise in proportion to the tax.

A tax, however, on raw produce, and on the
necessaries of the labourer, would have another
effect — ^it would raise wages. From the eflect of
the principle of population on the increase of man-
kind, wages of the lowest kind never continue
much above that rate which nature and habit de-
mand for the support of the labourers. This class
is never able to bear any considerable proportion of
tai^ation; and, consequently, if they had to pay
8^. per quarter in addition for wheat and in some
smaller proportion for other necessaries, they
would not be able to subsist on the same wages as
before^r and to keep up the race of labourers.
Wages would inevitably and necessarily rise; and
in proportion as they rose, profits would fall. Go-
vernment would receive a tax of 8^. per quarter on
all the com consumed in the country, a part of
which would be paid directly by the consumers of
com ; the other part would be paid indirectly by
those who employed labour, and would affect pro-
fits in the same manner as if wages had been raised

174 TAXES OlSr HAW PRODUCE. [CHAP. IX.

from the increased demand for labour compared
with the supply, or from an increasing difficulty of
obtaining tne food and necessaries required by the
labourer.

In as far as the tax might aflfect consumers, it
would be an equal tax, but in as far as it would
affect profits, it would be a partial tax ; for it would
neither operate on the landlord nor on tlie stock-
holder, since they would continue to receive, the
one the same money rent, the other the same mo-
ney dividends as before. A tax on the produce of
the land then would operate as follows:

1st. It would raise the price of raw produce by
a sum equal to the tax, and would there-
fore fall on each consumer in proportion to
his consumption.

Sdly. It would raise tlie wages of labouur^ and
lower profits.

It may then be objected against such a tax^

1st. That by raising the wages of labour, and
lowering profits, it is an unequal tax, as it
affects the income of the farmer, trader, and
manufacturer, and leaves untaxed the in-
come of the landlord, stockholder, and
others enjoying fixed incomes.'

2dly. That there would be a considerable in-
terval between the rise in the price of com

CHAP, IX.3 TAXES OS RAW PRODUCE. 175

and the rise of wages, during whicK much
distress would be experienced by the la-
bourer.

3dly. That raising wages and lowering profits
is a discouragement to accumulation, * and
acts in the same way as a natural poverty
of soil.

4thly. That by raising the price of raw pro-
duce, the prices of all commodities into
which raw produce enters, would be raised,
and that therefore we should not meet the
foreign manufacturer on equal terms in the
general market.

With respect to the first objection, that by rais-
ing the wages of labour and lowering profits, it
acts unequally as it affects the income of the
farmer, trader, and manufacturer, and leaves un-
taxed the income of the landlord, stockholder,
and others enjoying fixed incomes, — ^it may be
answered, that if the operation of the tax be
unequal, it is for the legislature to make it equal,
by taxing directly the rent of land, and the divi-
dends from stock. By so doing, all the objects of
an income tax would be obtained, without the in-
convenience of having recourse to the obnoxious
measure of prying into every man's concerns, and
arming commissioners with powers repugnant to
the habits and feelings of a free country.

With respect to the second objection, that there

176 TAXES ON RAW PBODUCE. [CHAP. IX,

would be a considerable interval between the rise
of the price of corn and the rise of wages, during
which much distress would be experienced by the
lower classes, — I answer, that uilder difierent cir-
cumstances, wages follow the price of raw produce
with very different degrees of celerity; that in
some cases no efiect whatever is produced on wages
by a rise of com ; in others, the rise of wages pre-
cedes the rise in the price of com ; again, in some
the effect on wages is slow, and in others rapid.

Those who maintain that it is the price of ne-
cessaries which regulates the price of labour,
always allowing for the particular state of progres-
sion in which the society may be, seem to have
conceded too readily, that a rise or fall in the price
of necessaries will be very slowly succeeded by a
rise or fall of wages. A high price of provisions
may arise from very different causes, and may ac-
cordingly produce very difierent effects. It may
arise from

1st. A deficient supply.

2nd. From a gradually increasing demand,

which may be ultimately attended with an

increased cost of production.
Srdly. From a fall in the value of money.
4thly. From taxes on necessaries.

These four causes have not been sufficiently
distinguished and separated by those who have

CHAP. IX.3 TAXES ON RAW PRODUCE. I77

inquired into the influence of a high price of ne^
cessaries on wages. We will examine them se-
verally.

A bad harvest will produce a high price qf pro-
visions, and the high price is the only means by
which the consumption is compeUed to conform
to the state of the supply. If all the purchasers
of corn were rich, the price might rise to any de-
gree, but the result would remain unaltered ; the
price would at last be so high, that the least rich
would be obliged to forego the use of a part of the
quantity which they usually cbnsumed, as by di-
minished consumption alone the demand could be
brought down to the limits of the supply. Under
such circumstances no policy can be more absurd,
than that of forcibly regulating inoney wages by
the price of food, as is frequently done, by misap-
plication of the poor laws. Such a measure affords
no real relief to the labourer, because its eflect is
to raise still higher the price of com, and at last he
must be obliged to limit his consumption in pro-
portion to the limited supply. In the natural
course of affidrs a deficient supply from bad sea-
sons, without any pernicious and unwise interfer-
ence, would not be followed by a rise of wages.
The raismg of wages is merely nominal to those
who receive them ; it increases the competition in
the com market, and its ultimate eflfect is to raise
the profits of the growers and dealers in com.
TTie wages of labour are really regulated by the

178 TAXES ON RAW PRODUCE. [^CHAP. IX.

proportion between^ the supply and demand of ne-
cessaries, and the supply and demand of labour ;
and money is merely the medium, or measure, in
which wages are expressed. In this case then the
distress of the labourer is unavoidable, and no le-
gislation can afford a remedy, except by the im-
portation of additional food, or by adopting the
most useful substitutes. ^

When a high price of corn is the effect of an
increasing demand, it is always preceded by an
increase of wages, for demand cannot increase,
without an increase of means in the people to pay
for that which they desire. An accumulation of
capital naturally produces an increased competition
among the employers of labour, and a consequent
rise in its price. The increased wages are not
always immediately expended on food, but are first
made to contribute to the other enjoyments of the
labourer. His improved condition however in-
duces, and enables him to marry, and then the de-
mand for food for the support of his family natu-
rally supersedes that of those other enjoyments on
which his wages were temporarily expended.
Com rises then because the demand for it in-
creases, because there are those in the society who
have improved means of paying for it ; and the
profits of the farmer will be raised above the gene-
ral level of profits, till the requisite quantity of ca^
pital has been employed 6n its production. Whe-
ther, after this has taken place, com shall again

CHAP. IX.] TAXES ON RAW PRODUCE. 179

fall to its former price, or shall continue perma-
nently higher, will depend on the quality of the
land" from which the increased quantity of com
has been supplied. If it be obtained from land of
the same fertility, as that which was last in culti-
vation, and with no greater cost of labour, the
price will fall to its former state ; if from poorer
land, it will continue permanently higher. The
high wages in the first instance proceeded from an
increase in the demand for labour : inasmuch as it
encouraged marriage, and supported children, it
produced the effect of increasing the supply of
labour. But when the supply is obtained, wages
will again fall to their former price, if com has
fallen to its former price : to a higher than the
former price, if the increased supply of com has
been produced from land of an' inferior quality.
A high price is by no means incompatible with an
abundant supply : the price is permanently high,
not because the quantity is deficient, but because
there has been an increased cost in producing it.
It generally happens indeed, that when a stimulus
has been given to population, an effect is produced
beyond what the case requires; the population
may be, and generally is so much increased as,
notwithstanding, the increased demand for labour,
to bear a greater proportion to the funds for main-
taining labourers than before the increase of ca-
pital. In this case a re-action will take place,
wages will be below their natural level, and will
continue so, till the usual proportion between tJie

N 2

180 TAXES ON RAW PRODUCE. [cHAP. IX.

supply and demand has been restored. In this
case then, the rise in the price of corn is preceded
by a rise of wages, and therefore entails no distress
on the labourer.

A fall in the value of money, in consequence of
an influx of the precious metals from the mines,
or from the abuse of the privileges of banking, is
another cause for the rise of the price of food;
but it will make no alteration in the quantity pro*
duced. It leaves undisturbed too the number of
labourers, as well as the demand for them; for
there will be neither an increase nor a diminution
of capital. The quantity of necessaries to be al-
lotted to the labourer, depends on the comparative
demand and supply of necessaries, with the com-
parative demand and supply of labour; money
being only the medium in which the quantity is
expressed ; and as neither of these is altered, the
real reward of the labourer will not alter. Money
wages will rise, but they will only enable him to
furnish himself with the same quantity of neces-
saries as before. Those who dispute this princi-
ple, are bound to shew why an increase of money
should not have the same effect in raising the price
pf labour, the quantity of which has not been in-
creased, as they acknowledge it would have on the
price of shoes, of hats, and of corn, if the quantity
o£ those commodities were not increased. The
xelative market value of hats and shoes is regulated
by the demand and supply of hats, compared

CHAP. IX. J JAXE8 ON RAW PRODUCE. 181

the demand and supply of shoes, and money is but
the medium in which their value is expressed. If
shoes be doubled in price, hats will also be doubled
in price, and they will retain the same comparative
value. So if com and all the necessaries of the
labourer be doubled in price, labour will be doubled
in price also, and while there is no interruption to
the usual demand and supply of necessaries and of
labour, there can be no reason why they should not
preserve their relative value.

Neither a fall in the value of money, nor a tax
on raw produce, though each will raise the price,
will necessarily interfere with the quantity of raw
produce ; or with the number of people, who are
both able to purchase, and wilUng to consume it.
It is very easy to perceive why, when the capital
of a country increases irregularly,, wages should
rise, whilst the price of corn remains stationary^
or rises in a less proportion ; and why, when the
capital of a country diminishes, wages should fall
whilst com remains stationary, or falls in a much
less proportion, and this too for a considerable
time ; the reason is, because labour is a commo-
dity which cannot be increased and diminished
at pleasure. If there are too few hats in the
maricet for the demand, the price will rise, but
only for a- short time ; for in the course of one
year, by emplo)dng more capital in that trade, any
reasonable addition may be made to the quantity of
hats, and therefore their market price cannot long

182 TAXES ON RAW PRODUCE*. fcHAP. IX*

very much exceed their natural price ; but it is not
so with men ; you cannot increase their number in
one or two years when there is an increase of capi-
tal, nor can you rapidly diminish their number
when capital is in a retrograde state ; and, there-
fore, the number of hands increasing or diminishing
slowly, whilst the funds for the maintenance of
labour increase or diminish rapidly, there must be
a considerable interval before the price of labour is
exactly regulated by the price of com and necessa-
ries ; but in the case of a fall in the value of money,
or of a tax on com, there is not necessarily any
excess in the supply of labour, nor any abatement
of demand, and therefore there can be no reason
why the labourer should sustain a real diminution
of wages.

A tax on corn does not necessarily diminish the
quantity of corn, it only raises its money price ; it
does not necessarily diminish the demand compared
with the supply of labour ; why then should it di-
minish the portion paid to the labourer ? Suppose
it true that it did diminish the quantity given to
the labourer, in other words, that it did not raise
his money wages in the same proportion as the tax
raised the price of the corn which he consumed ;
w^ould not the supply of com exceed the de-
mand ? — ^would it not fall in price ? and would not
the labourer thus obtain his usual portion? In
such case, indeed, capital would be withdrawn from
agriculture 5 for if the price were not increased by

CHAP. rX.j TAXEff ON RAW PRODUCE. 183

the whole amount of the tax, agricultural profits
would be lower than the general level of profits,
and capital would seek a more advantageous em-
ployment. In regard then to a tax on raw produce,
which is the point under discussion, it appears to
me that no interval which could bear oppressively
on the labourer, would elapse between the rise in
the price of raw produce, and the rise in the wages
of the labourer ; and that therefore no other incon-
venience would be suffered by this class, than that
which they would suffer from any other mode of
taxation, namely, the risk that the tax might in-
fringe on the funds destined for the maintenance
of labour, and might therefore check or abate the
demand for it.

With respect to the third objection against taxes
on raw produce, namely, that the raising wages,
and lowering profits, is a discouragement to accu-
mulation, and acts in the same way as a natural
poverty of soil ; I have endeavoured to shew in
another part of this work that savings may be as
eflfectually made from expenditure as from pro-
duction ; from a reduction in the value of commo-
dities, as from a rise in the rate of profits. By
increasing my profits from 1000/. to 1200/., whilst
prices continue the same, my power of increasing
my capital by savings is increased, but it is not in-
creased so much as it would be if my profits con-
tinued as before, whilst commodities were so lowered

184 TAXES ON RAW PBODUCK. [CHAP* IX.

in price, that 800^ would procure me as much as
lOOO/, purchased before.

Now the sum required by the tax must be raised*
and the question simply is, whether the. same a-
mount shall be taken from individuals by diminish-
ing their profits, or by raising the prices of the
commodities on which their profits will be ex-
pended.

Taxation under every form presents but a choice
of evils ; if it do not act on profit, or other sources
of income, it must act on expenditure ; and pro-
vided the burthen be equally borne, and do not re-
press reproduction, it is indifferent on which it is
laid. Taxes on production, or on the profits of
stock, whether applied immediately to profits, or
indirectly, by taxing the land or its produce, have
this advantage over other taxes ; that provided all
other income be taxed, no class of the community
can escape them, and each contributes according
to his means.

From taxes on expenditure a miser may escape;
he may have an income of 10,000/, per annum, and
expend only 300/, ; but from taxes on profits,
whether direct or indirect, he cannot escape ; he
will contribute to them either by giving up a part,
or the value of a part of his produce ; or by the
advanced prices of the necessaries essential to pro-

CflAP. IX.3 TAXES ON KAW PRODUCE. 185

duction, he will be unable to continue to accumu-i
late at the same rate. He may, indeed, have an
income of the same value, but he will not have the
same command of labour, nor of an equal quantity
of materials on which such labour can be exercised.

If a country is insulated from all others, having
no commerce with any of its neighbours, it can in
no way shift any portion of its taxes from itself.
A portion of the produce of its land and labour will
be devoted to the service of the State ; and I cannot
but think that, unless it presses unequally on that
class which accumulates and saves, it will be of
little importance whether the taxes be levied on
profits, on agricultural, or on manufactured com-
modities. If my revenue be 1000/. per annum, and
I must pay taxes to the amount of 100/., it is of
little importance whether I pay^it from my revenue,
leaving myself only 900/., or pay 100/. in addition
for my agricultural commodities, or for my manu-
factured goods. If 100/. is my fair proportion of
the expenses of the country, the virtue of taxation
consist in making sure that I shall pay that 100/.,
neither more nor less ; and that cannot be effected
in any manner so securely as by taxes on wages,
profits, or raw produce.

The fourth and last objection which remains to
be noticed is : That by raising the price of raw
produce, the prices of all commodities into which
raw produce enters^ will be raised, and that, there-

186 TAXES ON RAW PRODUCE. [cHAP. IX.

fore, we shall not meet the foreign manufacturer on
equal terms in the general market.

In the first place, com and all home commodi-
ties could not be materially raised in price without
an influx of the precious metals ; for the same
quantity of money could not circulate the same
quantity of commodities, at high as at low prices,
and the precious metals never could be purchased
with dear commodities. When more gold is re-
quired, it must be obtained by giving more, and
not fewer commodities in exchange for it. Neither
could the want of money be supplied by paper, for
it is not paper that regulates the value of gold as a
commodity, but gold that regulates the value of
paper. Unless then the value of gold could be
lowered, no paper could be added to the circula-
tion without being depreciated. And that the
value of gold could not be lowered, appears clear,
when we consider that the value of gold as a com-
modity must be regulated by the quantity of goods
which must be given to foreigners in exchange for
it. When gold is cheap, commodities are dear ;
and when gold is dear, commodities are cheap, and
fall in price. Now as no cause is shewn why fo-
reigners should sell their gold cheaper than usual,
it does not appear probable that there would be
any influx of gold. Without such an influx there
can be no increase of quantity, no fall in its value,
no rise in the general price of goods*.

* It may be doubted whether commodities raised in price.

CHAP. IX.3 TAXES ON RAW PRODUCE. 187

The probable efkd of a tax on raw produce,
would be to raise the price of raw produce, and of
all commodities in which raw produce entered, but
not in any degree proportioned to the tax ; while
other commodities in which no raw produce en-
tered, such as articles made of the metals and the
earths, would fall in price : so that the same quan-
tity of money as before would be adequate to the
whole circulation.

A tax which should have the effect of raising the
price of all home productions, would not discourage
exportation, except during a very limited time. If
they were raised in price at home, they could not
indeed immediately be profitably exported, because
they would be subject to a burthen here from
which abroad they were free. The tax would pro-
duce the same effect as an alteration in the value
of money, which was not general and common to
all countries, but confined to a single one. If
England were that coimtry, she might not be able
to sell, but she would be able to buy, because im-
portable commodities would not be raised in price.
Under these circumstances nothing but money
coidd be exported in return for foreign commodi-
ties, but this is a trade which could not long con-
tinue ; a nation cannot be exhausted of its money,
for after a certain quantity has left it, the value of

merely by taxation, would require any more money for their cir-
culation. I believe they would not.

188 TAXES ON RAW PRODUCE. [CHAP. IX#

the remainder will rise» and such a price of com-
modities will be the consequence, that they will
again be capable of being profitably exported.
AlVTien money had risen, therefore, we should no
longer export it in return for goods, but we should
export those manufactures which had first been
raised in price, by the rise in the price of the raw
produce from which they were made, and then
again lowered by the exportation of money.

But it may be objected, that when money so
rose in value, it would rise with respect to foreign
as well as home commodities, and therefore that
all encouragement to import foreign goods would
cease. Thus, suppose we imported goods which
cost 100/. abroad, and which sold for 120/. here,
we should cease to import them, when the value
of money had so risen in England, that they would
only sell for 100/. here : this, however, could never
happen. The motive which determines us to im-
port a commodity, is the discovery of its relative
cheapness abroad ; it is the comparison of its price
abroad with its price at home. If a country ex-
port hats, aixd imports cloth, it does so because it
can obtain more doth by making hats, and ex-
changing them for cloth, than if it made the cloth
itself. If the rise of raw produce occasions any in-
creased cost of production in making hats, it would
occasion also an increased cost in making cloth. If,
therefore, both commodities were made at home,
they would both rise. One, however, being a com-

CHAP. IX.] TAXES ON RAW PRODUCE. 189

modity which we import, would not rise, neither
would it fall, when the value of money rose ; for by
not falling, it would regain its natural relation to
the exported commodity. The rise of raw produce
makes a hat rise from SO to 3d shillings, or 10 per
cent. : the same cause if we manufactured cloth,
would make it rise from QOs. to Q^. per yard. This
rise does not destroy the relation between cloth and
hats ; a hat was, and continues to be, worth one
yard and a half of cloth. But if we import cloth,
its price will continue uniformly at 20*. per yard,
unaffected first by the fall, and then by the rise in
the value of money ; whilst hats, which had risen
from 30s. to 33*., will again fall from 33*. to 30*.,
at which point the relation between cloth and hats
will be restored.

■

To simplify the consideration of this subject, I
have been supposing that a rise in the value of raw
materials would a£fect, in an equal proportion, aH
home commodities ; that if the effect on one were
to raise it 10 per cent., it would raise all 10 pel*
cent. ; but as the value of commodities is very dif-
ferently made up of raw material and labour ; as
some commodities, for instance, all those made from
the metals, would be unaffected by the rise of raw
produce from the surface of the earth, it is evident
that there would be the greatest variety in the ef-
fects produced on the. value of commodities, by a
tax on raw produce. As far as this effect was pro-
duced, it would stimulate or retard the exportation

190 TAXES ON RAW PRODUCE. [cHAP. IX.

of particular commodities, and would undoubtedly
be attended with the same inconvenience tliat at-
tends the taxing of commodities ; it would destroy
the natural relation between the value of each.
Thus the natural price of a hat, instead of being
the same as a yard and a half of cloth, might only
be of the value of a yard and a quarter, or it might
be of the value of a yard and three quarters, and
therefore rather a different direction might be given
to foreign trade. All these inconveniences would
probably not interfere with the value of the ex-
ports and imports ; they would only prevent the
very best distribution of the capital of the whole
world, which is never so well regulated, as when
every commodity is freely allowed to settle at its
natural price, unfettered by artificial restraints.

Although then the rise in the price of most of
our own commodities, would for a time check ex-
portation generally, and might permanently pre-
vent the exportation of a few commodities, it
could not materially interfere with foreign trade,
and would not place us under any comparative
disadvantage as far as regarded competition in
foreign markets.

CHAPTER X.

TAXES ON RENT.

A TAX on rent would affect rent only; it would
fall wholly on landlords, and could not be shifted
to any cla^s of consumers. The landlord could
not raise his rent, because he would leave unaltered
th€?*c(iflference between the produce obtained from
the least productive land in cultivation, and that
obtained from land of every other quality* Three
sorts of land, No« 1, 2, and 3, are in cultivation,
and yield respectively with the same labour, 180,
170, and 160 quarters of wheat; but No. 3 pays
no rent, and is therefore untaxed : the rent then of
No. 2 cannot be made to exceed the value of ten,
nor No. 1, of twenty quarters. Such a tax could
not raise the price of raw produce, because as the
cultivator of No. 3 pays neither rent nor tax, he
would in no way be enabled to raise the price of
the commodity produced. A tax on rent would
not discourage the cidtivation of fresh land, for
such land pays no rent, and would be untaxed. If
No. 4 were taken into cultivation, and yielded
150 quarters, no tax would be paid for such land;
but it would create a rent of ten quarters on No. 3,
which would then commence paying the tax.

192 TAXES ON RENT. [CHAP. X.

A tax on rent, as rent is constituted, would
discourage cultivation, because it would be a tax
on the profits of the landlord. The term rent of
land, as I have elsewhere observed, is applied
to the whole amount of the value paid by the
farmer to his landlord, a part only of which is
strictly rent The buildings and fixtures, and
other expenses paid for by the landlord, form
strictly a part of the stock of the farm, and must
have been furnished by the tenant, if not provided
by the landlord. Rent is the sum paid to the
landlord for the use of the land, and for the use
of the land only. The further sum that is paid to
him under the name of rent, is for the use of the
buildings, &c., and is really the profits of the
landlord's stock. In taxing rent, as no distinction
would be made between that part paid for the use
of the land, and that paid for the use of the land-
lord's stock, a portion of the tax would fall on
the landlord's profits, and would, therefore, dis-
courage cultivation, unless the price of raw pro-
duce rose. On that land, for the use of which no
rent was paid, a compensation under that name
might be given to the landlord for the use of his
buildings. These buildings would not be erected,
nor would raw produce be grown on such land,
till the price at which it sold would not only
pay for all the usual outgoings, but also this addi^
tional one of the tax. This part of the tax does
not fall on the landlord, nor on the farmer, but on
the consumer of raw produce.

CHAP. X.J TAXES ON RENT. 193

There can be little doubt but that if a tax were
laid on rent, landlords would soon find a way
to discriminate between that which is paid to
them for the use of the land, and that which is
paid for the use of the buildings, and the im-
provements which are made by the landlord's
stock. The latter would either be called the rent
of house and buildings, or on all new land taken
into cultivation, such buildings would be erected,
and improvements would be made by the tenant,
and not by the landlord. The landlord's capital
might indeed be really employed for that purpose ;
it might be nominally expended by the tenant,
the landlord furbishing him with the means, either
in the shape of a loan, or in the purchase of an
annuity for the duration of the lease. Whether
distinguished or not, there is a real difference be-
tween the nature of the compensations which the
landlord receives for these different objects; and
it is quite certain, that a tax on the real rent of
land falls wholly on the landlord, but that a tax on
that remuneration which the landlord receives for
the use of his stock expended on the farm, falls,
in a progressive country, on the consumer of raw
produce. If a tax were laid on rent, and no means
of separating the remuneration now paid by the
tenant to tlie landlord under the name of rent,
were adopted, the tax, as far as it regarded the
rent on the buildings and other fixtures, would
never fall for any length of time on the landlord,
but on the consumer. The capital expended on

194 TAXES ON RENT. [CHAP. X.

these buildings, &c.| must afford the usual profit
of stock ; but it would cease to afford this profit
on the land last cultivated, if the expenses of
those buildings, &c,, did not fall on the tenant;
and if they did, the tenant would then cease to
make his usual profits of stock, unless he could
charge them on the consumer.

CIIAFIER XL

U/^^< yi*'

• •

Tithes are a tax on the gross produce of the land,
and, like taxes on raw produce, fall wholly on the ^
consumer. They differ from a tax on rent, inas-
much as they afiect land which such a tax would
not reach; and raise the price of raw produce,
which that tax would not alter. Lands of the ^ /,
worst quality, as well as of the best, pay tithes/ and /
exactly in proportion to the quantity of produce
obtained from them ; tithes are therefore an equal , . - ^ *-
tax. ; ' cJ^^- •

If land of the last quality, or that which pays no^"*"^ '*. .
rent, and which regulates the price of com, yield ,......*' ^ -^

a sufficient quantity to give the farmer the usual
profits of stock, wl^en the price of wheat is 4i per
quarter, the price must rise to 4>/L 8^. before the
same profits can be obtained after the tithes are
imposed, because for every quarter of wheat the
cultivator must pay eight shillings to the church,
and if he does not obtain the same profits, there
is no reason why he should not quit his employ-
ment, when he can get them in other trades.

The only difference between tithes and taxes on
raw produce, is, that one is a variable money tax, th*

o 2

196 TITHES. [CIIAP. XI.

other a fixed money tax. In a stationary state of
society, where there is neither increased nor dimi-
nished facility of producing com, they ^dll be
precisely the same in their effects ; for, in such a
state, corn will be at an invariable jprice, and the
tax will therefore be also invariable. In either a
retrograde state, or in a state in which great im-
provements are made in agriculture, and where
consequently raw produce will fall in value com-
paratively with other things, tithes will be a lighter
tax than a permanent money tax ; for if the price
of corn should faU from 4/. to 3/., tlie tax would
fall from eight to six shillings. In a progressive
state of society, yet without any marked improve-
s ments in agriculture, the price of corn would rise,
and tithes would be a heavier tax than a permanent
money tax. If corn rose from 4/. to 5/., the tithes
on the same land would advance from eight to ten
shillings.

Neither tithes nor a money tax will affecft the
^^money rent of landlords, but both will materiaUy
f afifect corn rents. We have already observed how
a money tax operates on corn rents> and it is equally
evident that a similar effect would be produced by
' tithes. If the lands. No. 1, 2, 3, respectively pro-
duced 180, 170, and I60 quarters, the rents might
be on No. 1, twenty quarters, and on No. 2, ten
quarters ; but they would no longer preserve that
proportion after the payment of tithes : for if a
tenth be taken from each, the remaining produce

CHAP. XI.3 TITHES. 197

will be 162, 153, 144, and consequently the com
rent of No. 1 wUl be reduced to eighteen, and that
of No. 2 to nine quarters. But the price of corn
would rise from 4/. to 4/. 8^. 10? rf. ; for 144 quar-
ters are to 41. as 160 quarters to 4/. 8s. 10|rf., and
consequently the money rent would continue un-
altered ; for on No. 1 it would be 80/.,* and on
No. 2, 40/.t

The chief objection against tithes is, that they
are not a permanent and fixed tax, but inci-ease in
value, in proportion as the difficulty of producing
com increases. If those difficulties should make
the price of com 4/., the tax is 8^., if they should
increase it to 5/., the tax is 10^., and at 6/., it is
IQs. They not only rise in value, but they in-
, crease in amount: thus, when No. 1 was cultivated,
the tax was only levied on 1 80 quarters ; when
No. 2 was cultivated, it was levied on 180+170,
or 350 quftrters ; and when No. 3 was cultivated,
oh 180+170+160=510 quarters. Not only is^
the amount of tax increased from 100,000 quarters,
to 200,000 quarters, when the produce is increased
from one to two millions of quarters ; but, owing'
to the increased labour necessary to produce the
second million, the relative value of raw produce
is so advanced, that the 200,000 cjuartcrs may be,
though only twice in quantity, yet in value three

♦ 18 Quarters at 4/. Ss, lOJ-i.
t 9 Quarters at 4-/ Ss, lOid,

f\ r

198 TITHES, fCHAP* XI.

times that of the 100,000 quarters which were paid
before.

If an equal value were raised for the church by
aiiy other means, increasing in the same manner
as tithes increase, proportionably with the difficulty
of cultivation, the effect would be the same, and
therefore it is a mistake to suppose that, because
they are raised on the land, they discourage cul*
tivation more than an equal amount would do if
raised in any other manner. The church would
in both cases be constantly obtaining an increased
portion of the net produce of the land and labour
of the country. In an improving state of society,
the net produce of land is always diminishing in
proportion to its gross produce ; but it is from the
net income of a country that all taxes are ulti-
mately paid ,either in a progressive or in a station-
ary country. A tax increasing with the gross in-
come, and falling on the net income, must neces-
sarily be a very burdensome, and a very intolerable
tax. Tithes are a tenth of the gross, and not of
the net produce of the land, and therefore as so-
ciety improves in wealth, they must, though the
same proportion of the gross produce, become a
larger and larger proportion of the net produce.

Tithes, however, may be considered as injurious
to landlords, inasmuch as they act as a bounty on
importation, by taxing the growth of home com,
while the importation of foreign com remains un-

CHAP. XI.3 TITHES. 199

fettered. And if, in order to relieve the landlords
from the effects of the diminished demand for land,
which such a bounty must encourage, imported
corn were also taxed, in. an equal degree with com
grown at home, and the produce paid to the State,
no measure could be more fair and equitable ; since
whatever were paid to the State by this tax, would
go to diminish the other taxes which the expenses
of Government make necessary : but if such a tax
were devoted only to increase the fund paid to the
church, it might indeed op. the whole increase the
general mass of production, but it would diminish
the portion of that mass allotted to the productive
classes.

If the trade of cloth were left perfectly free, our
manufacturers might be able to sell cloth cheaper
than we could import it. If a tax were laid on the
home manufacturer, and not on the importer of
cloth, capital might be injuriously driven from the
manufacture of cloth to the manufacture of some
other commodity, as cloth might then be imported
cheaper than it could be made at home. If im*
porte^ doth should also be taxed, cloth would
again be manufactured at home. The consumer
fu*st bought cloth at home, because it was cheaper
than foreign doth ; he then bought foreign cloth,
because it was cheaper untaxed than home cloth
taxed : he lastly bought it again at home, because
it was cheaper when both home and foreign doth
were taxed. It is in the last case that he pays the

200 tiTHES. [chap. XI.

greatest price for his cloth, but all his additional
payment is gained by the state. In the second case,
he pays more than in the first, but all he pays in
addition is not received by the State, it is an in-
creased price caused by difliculty of production,
which is incurred, because the easiest means of
production are taken away from us, by being fet-
tered with a tax.

CHAPTER XII.

LAND-TAX.

A LAND-TAX, levied in proportion to the rent oi
land, and varying with every variation of rent, is
in effect a tax on rent ; and as such a tax will not
apply to that land which yields no rent, nor to the
produce of that capital which is employed on the
land with a view to profit merely, and which never
pays rent, it will not in any way affect the price of
raw produce, but will fall whoUy on the landlords.
In no respect would such a tax differ from a tax
on rent« But if a land-tax be imposed on all cul-
tivated land, however moderate that tax may be, it
will be a tax on produce, and will therefore raise
the price of produce. If No. 3 be the land last
cultivated, although it should pay no rent, it can-
not, afler the tax, be cultivated, and afford the
general rate of profit, unless the price of produce
rise to meet the tax. Either capital will be with-
held from that emplojrment until the price of corn
shall have risen, in consequence of demand, suffi-
ciently to afford the usual profit ; or if already em-
ployed on such land, it will quit it, to seek a more
advantageous employment. . The tax cannot be
removed to the landlord, for by the supposition he
receives no rent. Such a tax may be proportioned

202 LAND-TAX. . [chap. XII.

to the quality of the land and the abundance of its
produce^ and then it differs in no respect from
tithes ; or it may be a fixed tax per acre on all land
cultivated, whatever its quality may be.

A land-tax of this latter description would be a
very unequal tax, and would be contrary to one of
the four maxims with regard to taxes in general,
to which, according to Adam Smith, all taxes
should conform. The four maxims are as follow :

1 . " The subjects of every state ought to con-
tribute towards the support of the government,
as nearly as possible in proportion to their re*
spective abilities.

2. " The tax which each individual is bound to
pay ought to be certain and not arbitrary.

3. " Every tax ought to be levied at the time,
or in the manner in which it is most likely to
be convenient for the contributor to pay it.

4. « Every tax ought to be so contrived as both
to take out and to keep out of the pockets of
the people as little as possible, over and above
what it brings into the public treasury of the
State."

An equal land-tax, imposed indiscriminately
and without any regard to the distinction of its

CHAP, xri.] land-tax, 203

quality, on all land cultivated, will raise the price
of corn in proportion to the tax paid by the culti-
vator of the land of the worst quality. Lands of
different quality, with the employment of the same
capital, will yield very different quantities of raw
produce. If on the land which yields a thousand
quarters of com with a given capital, a tax of 100/.
be laid, corn will rise 2s. per quarter to compen-
sate the farmer for the tax. But with the same
capital on land of a better quality, 2,000 quarters
may be produced, which at 2s. a quarter advance,
would give 200/.; the tax, however, bearing
equally on both lands will be 100/. on the better
as well as on the inferior, and consequentiy the
consumer of corn will be taxed, not only to pay
tlie exigencies of the State, but also to give to the
cultivator of the better land, 100/. per annum
during the period of his lease, and afterwards to
raise the rent of the landlord to that amount. A
tax of this description then would be contrary to
the fourth maxim of Adam Smith, it would take
out and keep out of the pockets of the people
more than what it brought into the treasury of the
State. The taille in France before the Revolution,
was a tax of this description; those lands only
were taxed, which were held by an ignoble tenure,
the price of raw produce rose in proportion to the
tax, and therefore they whose lands were not
taxed, were benefited by the increase of their rent.
Taxes on raw produce, as well as tithes, are free
from this objection : they raise the price of raw

• i

204 LAND-TAX. [chap. XII.

produce, but they take from each quality of land
a. contribution in proportion to its actual produce,
and not in proportion to the produce of that which
is the least productive.

From the peculiar view which Adam Smith took
of rent, from his not having observed that much
capital is expended in every country, on the land
for which no rent is paid, he concluded that all
taxes on the land, whether they were laid on the
land itself in the form of land-tax or tithes, or on
the produce of the land, or were taken from the
profits of the farmer, were all invariably paid by
the landlord, and that he was in all cases the real
contributor, although the tax was, in general, no-
minally advanced by the tenant. ** Taxes upon
the produce of the land," he says, " are in reality
taxes upon the rent ; and though they may be ori-
ginally advanced by the farmer, are finally paid
by the landlord. When a certain portion of the
produce is to be paid away for a tax, the farmer
computes as well as he can, what the value of this
portion is, one year with another, likely to amount
to, and he makes a proportionable abatement in the
rent which he agrees to pay to the landlord.
There is no farmer who does not compute before-
hand what the church-tithe, which is a land-tax of
this kind is, one year with another, likely to
amount to." It is undoubtedly true, that the
farmer does calculate his probable outgoings of all
descriptions, when agreeing with his landlord for

CHAP. XII.] LAND-TAX. 205

the rent of his farm ; and if for the tithe paid to
the church, or for the tax on the produce of the
land, he were not compensated by a rise in the re-
lative value of the produce of his farm, he would
naturally endeavour to deduct them from his rent.
But this is precisely the question in dispute : whe-
ther he will eventually deduct them from his rent,
or be compensated by a higher price of produce.
For the reasons which have been already given, I
cannot have the least doubt but that they would
raise the price of produce, and consequently that
Adam Smith has taken an incorrect view of this
iiflportant question.

Dr. Smith's view of this subject is probably the
reason why he has described " the tithe, and
every other land-tax of this kind, under the ap-
pearance of perfect equality, as very unequal
taxes ; a certain portion of the produce being in
different situations, equivalent to a very different
portion of the rent." I have endeavoured to shew
that such taxes do not fall with unequal weight on
the different classes of farmers or landlords, as they
are both compensated by the rise of raw produce,
and only contribute to the tax in proportion as they
are consumers of raw produce. Inasmuch indeed
as wages, and through wages, the rate of profits
are afilected, landlords, instead of contributing
their full share to such a tax, are the class pecu-
liarly exempted. It is the profits of stock, from
which that portion of tlie tax is derived which falls

206 LAND-TAX. [chap. XII.

CHI those labourers, who, from the insufficiency of
their funds, are incapable of paying taxes; this
portion is exclusively borne by all those whose in-
come is derived from the employment of stock, and
therefore it in no degree affects landlords.

It is not to be inferred from this view of tithes,
and taxes on the land and its produce, that they
do not discourage cultivation. Every thing which
raises the exchangeable value of commodities of
any kind, which are in very general demand, tends
to discourage both cultivation and production ; but
this is an evil inseparable from all taxation, andls
not confined to the particular taxes of which we
are now speaking.

This may be considered, indeed, as the unavoid-
able disadvantage attending all taxes received and
expended by the State. Every new tax becomes a
new charge on production, and raises natural price.
A portion of the labour of the country which was
before at the disposal of the contributor to tlie tax,
is placed at the disposal of the State, and cannot
therefore be employed productively. This portion
may become so large, that sufficient surplus pro-
duce may not be lefl to stimulate the exertions of
those who usually augment by their savings the ca-
pital of the State. Taxation has happily never yet
in any free country been carried so far as constantly
from year to year to diminish its capital. Such a
state of taxation could not be long endured ; or if

CHAP. XII.] LAND-TAX. 207

endured, it would be constantly absorbing so much
of the annual produce of the country as to occasion
the most extensive scene of misery, famine, and
depopulation.

" A land-tax," says Adam Smitii, " which, like
that of Great Britain, is assessed upon each district
according to a certain invariable canon, though
it should be equal at the time of its first establish-
ment, necessarily becomes unequal in process of
time, according to the unequal degrees of improve*
ment or neglect in the cultivation of the difierent
parts of the country. In England the valuation
according to which the different counties and pa-
rishes were assessed to the land-tax by the 4th,
William and Mary, was very unequal, even at its
first establishment. This tax, therefore, so far of-
fends against the first of the four maxims above
mentioned. It is perfectly agreeable to the other
three. It is perfectly certain. The time of pay-
ment for the tax being the same as that for the
rent, is as convenient as it can be to the contribu-
tor. Though the landlord is in all cases the real
contributor, the tax is commonly advanced by the
tenant, to whom the landlord is obliged to allow
it in the payment of the rent."

If the tax be shifted by the tenant not on the
landlord but on the consumer, then if it be not
unequal at first, it can never become so ; for the
price of produce has been at once raised in pro-

208 LAND-TAX. [chap. XIX.

portion to the tax, and will afterwards vary no
more on that account. It may offend, if unequal,
^s I have attempted to shew that it will, against
the fourth maxim above mentioned, but it will not
offend against the first. It may take more out of
the pockets of the people than it brings into the
public treasury of the State, but it will not fall
unequally on any particular class of contributors.
M. Say appears to me to have mistaken the nature
and effects of the English land-tax, when he says,
•* Many persons attribute to this fixed valuation,
the great prosperity of English agriculture. That
it has very much contributed to it there can be no
doubt. But what should we say to a Government,
which, addressing itself to a small trader, should
hold this language : * With a small capital you are
carrying on a limited trade, and your direct con-
tribution is in consequence very small. Borrow
and acccmulate capital ; extend your trade, so that
it may procure you immense profits ; yet you shall
never pay a greater contribution. Moreover, when
your successors shall inherit your profits, and shall
have further increased them, they shall not be
valued higher to them than they are to you ; and
your successors shall not bear a greater portion of
the public burdens.'

" Without doubt this would be a great encou-
ragement given to manufactures and trade ; but
would it be just ? Could not their advancement
be obtained at any other price ? In England itself^

CHAP. XII. ]] XAND-TAX* f09

has not manufacturing and commercial industry
made even greater progress, since the same period^
without being distinguished with so much parti-
ality ? A landlord by his assiduity, economy, and
skill, increases his annual revenue by 5000 franc8«
If the State daim of him the fifth part of his aug-
mented income, will there not remain 4000 franca
of increase to stimulate his further exertions ?**

M. Say supposes, ** A landlord by his assiduity^
economy and skill, to increase his annual revenue
by 5000 francs ;'' but a landlord has no means of
employing his assiduity, economy and skill on hia
land, unless he farms it himself ; and then it is in
quality of capitalist and farmer that he makes the
improvement, and not in quaUty of landlord. It
is not conceivable that he could so augment the
produce of his farm by any peculiar skill on hia
part, without first increasing the quantity of capital
employed upon it. If he increased the cajHtal, his
larger revenue might bear the same proportion to
his increased capital, as the revenue of all other
farmers to their capitals*

If M. Say's suggestion were followed, and the
State were to claim the fifih part of the augmented
income of the farmer, it would be a partial tax on.
farmers, acting ou their profits, and not affecting
the profits of those in other employments. The
tax would be paid by all lands, by those which
yielded scantily as well as by those which yiddcd

tvo

LAND-TAX.

[chap. XII.

abundantly ; and on some lands there could be no
compensation for it by deduction from rent, far no
rent is paid. A partial tax on profits never faUs
on the trade on which it is laid, for the trader will
either quit his employment, or remunerate himself
for the tax. Now those who pay no rent could be
recompensed only by a rise in the price of pro-
duce, and thus would M. Say's proposed tax fall
on the consumer, and not either on the landlord
or farmer.

If the proposed tax were increased in proportion
to the increased quantity or value, of the gross
produce obtained firom the land^ it would differ in
nothing from tithes, and would equally be trans-
ferred to the consumer. Whetha then it fell on
the gross or on the net produce of land, it would
be equally a tax on consumption, and would only
afiect the landlord and farmer in the same way as
other taxes on raw produce.

If no tax whatever had been laid on the land,
and the same sum had been raised by any other
means, agriculture would have flourished at least
as well as it has done ; for it is impossible that any
tax on land can be an encouragement to agricul-
ture ; a moderate tax may not, and probably does
not, greatly prevent, but it cannot encourage pro-
duction. The English Government has held no
such language as M. Say has supposed. It did not
promise to exempt the agricultural class and their

' . y'

CHAP. XII.} LAND-TAX. 211

successors from all future taxation, and to raise
the further supplies which the State might require*
from the other classes of society ; it said only, ** in
this mode we will no further burthen the land ;
but we retain to ourselves the most perfect liberty
of making you pay, under some other form, your
full quota to the future exigencies of the State/'

Speaking of taxes in kind, or a tax of a certain
proportion of the produce, which is precisely the
same as tithes, M. Say says, <* This mode of tax*
ation appears to be the most equitable ; there is,
however, none which is less so : it totally leaves
out of consideration the advances made by the
producer ; it is proportioned to the gross, and not
td the net revenue. Two agriculturists cultivate
difierent kmds of raw produce: one cultivates
com on middling land, his expenses amounting
annually on an average to 8000 francs : the raw
produce from his lands sells for 12,000 francs ; he
has then a net revenue of 4000 francs.

^^ His neighbour has pasture or wood land^
which brings in every year a like sum of 12,000
francs, but his expenses amount only to 2000
francs. He has therefore on an average a net re*
venue of 10,000 francs.

<* A law ordains that a twelfth of the produce
of all the fruits of the earth he levied in kind,
whatever they may be. From the first is takenin

212 LAND-TAX. [chap. XII.

consequence of this law, corn of the value of 1000
francs ; and from the second, hay, cattle, or wood,
of the same value of 1000 francs* What has hap-
pened? From the one, a quarter of his net in-
come, 4000 francs, has been taken; from the
other, whose income was 10,000 francs, a tenth
only has been taken. Income is the net profit
which remains after replacing tlie capital exactly
in its former state. Has a merchant an income
equal to all the sales, which he makes in the course
of a year ? certainly not ; his income only amounts
tp the excess of his sales above his advances, and
it is on tliis excess only that taxes on income
should fall.'*

M. Say's error in the above passage*. Qes in ^up-
posing tliat because the value of the produce o^
one of these two farms, after reinstating the capi-
tal, is greater than the value of the produce of the
o&er, oa that account the net income of the culti-
vators will differ by the same amount. The net
income of the landlords and tenants together of
the wood land, may be much greater than the net
income of the landlords and tenants of the com
liand; but it is on account of the dilSerenee of
rent, and not on account of the diflFerence in the
rate of profit. M. Say has wholly omitted thp
consideration of the difierent amount of rent,
which these cultivators would have to pay* , There
cannot be two rates of profit in the saosie employ-
ment, and . therefore when the value of produce is.-

« ^

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k
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CHAP, XII.] LAND-TAX. 213

in different proportions to capital, it is the rent
which will differ, and not the profit. Upon what
pretence would one man with a capital of 2000
francs, be allowed to obtain a net profit of 10,000
francs from its employment, whilst another, with a
capital of 8000 francs, would only obtain 4000
francs? Let M. Say make a due allowance for
rent ; let him further allow for the eflect which
such a tax would have on the prices of these dif-
ferent kinds of raw produce, and he will tlien per-
ceive that it is not an unequal tax, and further that
the producers themselves will no otherwise contri-
bute to it, than any other class of consumers.

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CHAPTER XIII.

TAXES ON GOLD.

The rise in the price of commodities, iii conse-
<liience of taxation or of difficulty of production,
"Will in all cases ultimately ensue ; but the duration
of the interval, before the market price will con*
form to the natural price, must depend on the na-
ture of the commodity, and on the facility with
which it can be reduced in quantity. If the quan*
tity of the commodity taxed could not be dimi-
nished, if the capital of the farmer or of the hatter
for instance, could not be withdrawn to other em-
ployments, it would be of no consequence that
their profits were reduced below the general level
by means of a tax^ unless the demand for their
commodities should increase, they would never be
able to elevate the market price of com and of
hats up to their increased natural price. Their
threats to leave their employments, and remove
their capitals to more favoured trades, would be
treated as an idle menace which could not be car-
ried into efiect ; and consequently the price would
not be raised by diminished production. Commo-
dities, however, of all descriptions can be reduced
in quantity, and capital can be removed from
trades which are less profitable to those which are

Hr /*

■V.'i'

€^AF. XIII •] TAXES ON GOL0. S15

more so, but with different degrees of rapidity.
In proportion as the supply of a particular commo-
dity can be more easily reduced, without inconve-
nience to the producer, the price of it will more
quickly rise after the difficulty of its production has
been increased by taxation, or by any other means. ^ ^

Com being a commodity indispensably necessary to (''^f^'^i^^ l-
every one, little effect wUl be produced on the de- /* /'
mand for it in consequence of a tax, and therefore \, ; . _ <.. . >
the supply would not probably be long excessive,!./^ * ^

even if the producers had great difficulty in remov-
ing their capitals from the land. For this reason, I .
the price of com wift speedily be raised by taxa«/ '
tion, and the fanner will be enabled to transfer thef,
tax from Iiimself to the consumer.

If the mines which supply us with gold were in
this country, and if gold were taxed, it could not
rise in relative value to other things, till its quan^^
tity were reduced. This would be more particu*
larly the case, if gold were used exclusively for
money. It is true that the least productive minesi
those which paid no rent, could no longer be
worked, as they coidd not afibrd the general rate
of profits till the relative value of gold rose, by a
sum equal to the tax. The quantity q£ gold, and,
tlierefiire, the quantity of money would be slowly
reduced : it would be a littie diminished in one
year, a little more in another, and finally its value
would be raised in proporticm to the tax ^ but in
the interval, the proprietors or holders^ as they.

dl6 TAXES ON COLD. ^CHAP. Xl«*

Irould pay the tax, would be the sufierers, and not
those who used money. If out of every 1 ,000 quar-
ters of wheat in the country, and every 1000 produ-
ced in future, Government should exact lOOquarters i
as a tax, the remaining 900 quarters would ex-
change for the same quantity of other commodities
that 1000 did before ; but if the same thing took
place with respect to gcdd, if of every 10002.
money now in the country, or in future to be
brought into it, Government could exact 100/. as
a tax, the remaining 900L would purchase very
little more than 900/^ purchased before^ The tax
would fall upon him, whose property consisted of
money, and would continue to do so till its quan-
tity were reduced in proportion to the increased
cost of its production caused by the tax«

This, perhaps, would be more particulary the
case with respect to a metal us^d for money, than
any other commodity ; because the demand for
money is not for a definite quantity, aa is the de«
mand for clothes, or for food* The demand for
money is regulated entirely by its value, and its
value by its quantity. If gold were of double the
value, half the quantity would perform the same
functions in circulation, and if it were of half the
value, double the quantity would be required. If
the market value of com be increased one tenth
by taxation, or by difficulty of production, it is
doubtful whether any effect whatever would be
produced on the quantity consumed, because every

CRAP* XinO TAXES ON GOLD. £17

man's want is for a definite quantity, and, there-
fore, if he has the means of purchasing, he will
continue to consume as before : but for money, the
demand is exactly proportioned to its value. No
man could consume twice the quantity of com,
which is usually necessary for his support, but
every man purchasing and selling only the same
quantity of goods, may beobliged to employ twice,
thrice, or any number of times the same quantity
of money.

The argument which I have just been using,
s^plies only to those states of society in which the
precious metals are used for money, and where
paper credit is not established. The metal gold,
like all other commodities, has its value in the
market ultimately regulated by the comparative
fadlity or difficulty of producing it; and although
from its durable nature, and from the difficulty of
reducing its quantity, it does not readily bend to
variations in its market value, yet that difficulty id
much increased from the circumstance of its being
used as money. If the quantity of gold in the
market for the purpose of commerce only, were
10,000 ounces, and the consumption in our mailu-
factures were 2000 ounces annually, it might be
raised one fourth, or 25 per cent, in its value, in
one year, by withholding the annual supply; but
if in consequence of its being used as money, the
quantity employed were 100,000 ounces, it would
not be Raised one fourth in value in less than ten

■

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f i^

</ -

. A •

< • *

t-y<.

c C

* .

k I

«18 7AXES ON GOLn; £CHAP. XIII,

years. As money made of paper may be readily
reduced in quantity, its value, though its standard
were gold, would be increased as rapidly as that
of the metal itself would be increased, if the metal,
by forming a very small part of the circulation,
had a very slight connexion with money.

If gold were the produce of one country only,
and it were used universally for money, a very
considerable tax might be imposed on it, which
would not fall on any country, except in propor-
tion as they used it in manufactures, and for uten-
sils ; upon that portion which was used for money,
though a large tax might be received, nobody
would pay it. This is a quality peculiar to money.
All other commodities of which there exists a li-
mited quantity, and which cannot be increased by
competition, are dependent for their value, on the
tastes, the caprice, jnd the power of purchasers;
but money is a commodity which- no country has
any wish or necessity to increase : no more advan<»
tage results from using twenty millions, than from
using ten millions of currency. A country might
have a monopoly of silk, or of w^ne, and yet the
prices of silks and wine might fidl, because firom
caprice or fashion, or taste, cloth and brandy might
be preferred, and substituted; the same effect
might in a degree take place with gold, as &r as
its use is confined to manufactures: but while
money is the general medium of exchange, the
demand for At h never a matter of choice, but

* A. * »

CHAP. XIII.1 TAXES ON GOLQ. 319

always of necessity : you must take it in exchange
for your goods, and, therefore, there are no limits
to" the quantity which may be forced on you by
foreign trade, if it fall in value ; and no reduction
to which you must not submit, if it rise. You
may, indeed, substitute paper money, but by this
you do not, and cannot lessen the quantity of
money, for that is regulated by the value of the
standard for which it is exchangeable ; it is only
•by the rise of the price of commodities, that you
can prevent them from being exported from a
country where they are purchased with little money,
to a country where they can be sold for more, and
this rise can only be effected by an importation of
metallic money from abroad, or by the creation or
additicm of paper money at home. If then the King
of Spain, supposing him to be in exclusive possession
of the mines, and gold alone to be used for money,
were to lay a considerable tax on gold, he would
very much raise its natural value ; and as its market
value in Europe is ultimately regulated by its na-
tural value in Spanish America, more commodities
would be given by Europe for a given quantity of
gold. But tlie same quantity of gold would not
be produced in. America, as its value would only
be increased in proportioii to the diminution of
quantity consequent on its increased cost of pro-
duction. No more goods then would be obtained
in America, in exchange for all their gold export-
ed, than before ; and it may bie asked, where then
would be the benefit to Spain and her Colonies?

990

TAXES ON GOLDu [[cHAT. Xin«

Tlie benefit would be this, that if less gold were
produced, less capital would be employed in pro-
ducing it; the same value of goods from Europe
would be imported by the employment of the
smaller capital, that was before obtained by the
employment of the larger; and, therefore, all the
productions obtained by the employment of the
capital withdrawn from the mines, would be a
benefit which Spain would derive from the impo-
sition of the tax, and which she could not ob-
tain in such abundance, or with such certainty,
by possessing the monopoly of any other commo-
dity whatever. From such a tax, as far as money
was concerned, the nations of Eiurope would suffer
no injury whatever; they would have the same
quantity of goods, and consequently the same
means of enjoyment as before, but these goods
would be circulated with a less quantity, because a
more valuable money.

« /-

.'*

If in consequence of the tax, only one tenth of
the present quantity of gold were obtained jGrom
the mines, that tenth would be of equal value with
the ten tenths now produced. But the King of
Spain is not exclusively in possession of the mines
of the precious metals ; and if he were, his advan-
.tage from their possession, and the power of taxa-
tion, would be very much reduced by the limitation
of demand and consumption in Europe^ in conse-
quence of the universal substitution, in a greater
or less degree, of paper money. The agreement

r.f-.»'yf<fjr.

£m

CHAP. XIII* J TAXES OX GOLD. «21

of the market and natural prices of all commodi-'
ties, depends at all times on the facility with which
the supply can be increased or diminished. In the
case of gold, houses, and labour, as well as many
other things, this effect cannot, under some cir-
cumstances, be speedily produced. But it is differ-
ent with those commodities which are consumed
. and reproduced from year to year, such as hats,
shoes, com, and cloth ; they may be reduced, if
necessary, and the interval cannot be long before
the supply is contracted in proportion to the in-
creased charge of producing thenu

A tax on raw produce fsom the surface of the
earth, will, as we have seen, fall on the consumer,
and will in no way affect rent ; unless by diminbh-
ing the funds for the maintenance of labour, it
lowers wages, reduces the population, and dimi-
nishes the demand for com. But a tax on the
produce of gold mines must, by enhancing the
value of that metal, necessarily. reduce the demand
for it, and must therefore necessarily displace capi-
tal from the employment to which it was applied*
Notwithstanding then, that Spain would derive all
the benefits which I have stated from a tax on
gold, the proprietors of those mines from which
capital was withdrawn would lose all their rent.
', This would be a loss to individuals, but not a na- '
tional loss ; rent being not a creation, but merely a'
transfer of wealth : the King of Spain, and the pro-,
prietorsof the mines which continued to be worked.

/•

r' •

)

^2 TAXES ON GOLD. (^CHAP, XHL

would together receive not only all that the libe-
rated capital produced, but all that the other jm)-
prietors lost.

Suppose the mines of the 1st, 2nd, and 3rd qua-
lity to be worked, and to produce respectively
100, 80, and 70 pounds weight of gold, and there-
fore the rent of No, 1 to be thirty pounds, and .
that of No. 2. ten pounds. Suppose now the tax
to be seventy pounds of gold per annum on each
mine worked ; and consequently that No. 1 alone
could be profitably worked ; it is evident that all
rent would immediately disappear. Before the
imposition of the tax, out of the 100 pounds pro-
duced on No. 1, a rent was paid of thirty pounds,
and the worker of the mine retained seventy, a
sum equal to the produce of the least productive
mine. The value, then, of what remains to the ca-
pitalist of the mine No. 1, must be the same as be-
fore, or he would not obtain the common profits of
stock ; and, consequently, after paying seventy out
of his 100 pounds for tax, the value of the remain-
ing thirty must be as great as the value of seventy
was before, and therefore the value of the whole
hundred as great as 233 pounds before. Its value
might be higher, but it could not be lower, or even
this mine would cease to be worked. Being a mo-
nopolised commodity, it could exceed its natural
value, and then it would pay a rent equal to that
excess ; but no funds would be employed in the
mine, if it were below this value. In return for

• ft

CfHAT. XIII.] TAXES ON GOU>: 223

one third of the labour and capital employed in the
mines, Spain would obtain as much gold a? would
exchange for the same, or very nearly the same
quantity of commodities as before. She would be > .
richer by the produce of the two thirds liberated \*/'^
from the mines. If the value of the 100 pounds oi^'
gold should be equal to that of the 250 pounds ex- '
tracted before ; the King of Spain's portion, his "
seventy pounds, would be equal to VfS at the for-
mer value : a small part of the King's tax only
would fall on his own subjects, the greater part
being obtained by the better distribution of capital*

The account of Spain would stand thus :

Formerly prodvced :

Gold 250 pounds, of the value of (suppose} . 10,000 jards of

cloth.

JVbw produced :

By the tiro capitalists who quitted the mines,

r the two capitalists who quitted the mines, x

the same value as 140 pounds of gold for- > ' ^

merly exchanired for : equal to ... J

merly exchanged for ; equal
By the capitalist who works the raioe. No. 1«'\
thirty pounds of gold^ increased in value, as v ' ^
1 to 2|, and therefore now of the value of j

Tax to the Kiaff seventy pounds, increased ) ^ ^^ , ^

, . , , «/ J 1. ^ C 7,000 yards of

also m value as 1 to 2i, and therefore now f ^. ,

of the value of • 15 600

9S4i TAXES ON GOLD. [[CHAP. XIII;

Of the 7000 received by the King, the people of
Spain would contribute only 1400, and 5600 would
be pure gain, effected by the liberated capital.

If the tax, instead of being a fixed sum per mine
worked, were a certain portion of its produce, the
quantity would not be immediately reduced in con-
sequence. If a half, a fourth, or a third of each
mine were taken for the tax, it would nevertheless:
be the interest of the proprietors to make their
mines yield as abundantly as before ; but if the
quantity were not reduced, but only a part of it
transferred from the proprietor to the king, its
value would not rise ; the tax would fall on the
people of the colonies, and no advantage would be
gained. A tax of this kind would have the effect
that Adam Smith supposes taxes on raw produce
would have dn the rent of land — ^it would fall en-
tirely on the rent of the mine. If pushed a little
further, indeed, the tax would not only absorb the
whole rent, but would deprive the worker of the
mine of the common profits of stock, and he would
consequently withdraw his capital from the produc*
tion of gold. If still further extended, the rent of
still better mines would be absorbed, and capital
Would be further withdrawal ; and thus the quan-
tity would be. continually reduced, and its value
raised, and the same effects would take place as we
have already pointed out ; a part of the tax would
be paid by the people of the Spanish colonies, and
the other part would be a new creation of produce.

CHAP. XIII.} TAXES ON GOLD. 225

by increasing the power of the instrument used as
a medium of exchange.

Taxes on gold are of two kinds, one on the ac-
tual quantity of gold in circulation, the other on
the quantity that is annually produced from the
mines. Both have a tendency to reduce the quan-
tity, and to raise the value of gold j but by neither
will its value be raised till the quantity is reduced,
and therefore such taxes will fall for a time, until
the supply is diminished, on the proprietors of
money, but ultimately that part which wiU perma-
nently fall on the community, will be paid by the
owner of the mine in the reduction of rent, and by
the purchasers of that portion of gold, which is used
as a commodity contributing to the enjoyments of
mankind, and not set apart exclusively for a cir*
culating medium.

CHAPTER XIV.

TAXES ON HOUSES

There are also other, commodities besides gold
which cannot be speedily reduced in quantity;
any tax on which will therefore fell on the pro-
prietor, if the increase of price should lessen the
demand.

T^xes on houses are of this description ; though
laid on the occupier, they will frequently fall by a
diminution of rent on the landlord. The produce
of the land is consumed and reproduced from year
to year, and so are many other* commodities; as
they may therefore be speedily brought to a level
with the demand, they cannot long exceed their nap
tural price. But as a tax on houses may be consi-
dered in the light of an additional rent paid by the
tenant, its tendency will be to diminish the demand
for houses of the same annual rent, without dimi-
nishing their supply. Rent wjll therefore fall, and
a part of the tax that will be paid indirectly by the
landlord.

" The rent of a house," says Adam Smith,
" may be distinguished into two parts, of which the
one may very properly be called the building rent.

CHAP. XIVO TAXES ON HOUSES. 227

the other is commonly called the ground rent.
The building rent 'is the interest or profit of the
capital expended in building the house. In order
to put the trade of a builder upon a level with
other trades, it is necessary that this rent should be
sufficient iiret to pay the same interest which he
would have got for his capital, if he had lent it
upon good security ; and, secondly, to keep the
house in constant repair, or what comes to the same
thing, to replace within a certain term of years the
capital which had been employed in building it.''
" If in proportion to the interest of money, the
trade of the builder afibrds at any time a much
greater profit than this, it will soon draw so much
capital from other trades, as will reduce the profit
to its proper level. If it afibrds at any time much
less than this, other trades will soon draw so much
capital from it as will again raise that profit. What-
ever part of the whole rent of a house is over and
above what is sufficient for afibrding this reasonable
profit, naturally goes to the ground rent; and
where the owner of the ground, and the owner of
the building, are two different persons, it is in most
cases completely paid to the former. In country
houses, at a distam;!e from aay great town, where
there is a plentiful choice of ground, the ground
rent is scarcely any thing, or no more than what
the space upon which the house stands, would pay
employed in agriculture. In country villas, in the
neighbourhood of some great town, it is sometimes
Jl good deal higher, and the peculiar conveniency,

S^ TAXES ON houses; [^chap. xiv*

or beanty of situation, is there frequently very
highly paid for. Ground rents are generally high-
est in the capital, and in those particular parts of
it, where there happens to be the greatest demand
for houses, whatever be the reason for that demand,
whether for trade and business, for pleasure and
society, or for mere vanity and fashion.*^ A tax
on the rent of houses may either fall on the occu-
pier, on the ground landlord, or on the building
landlord. In ordinary cases it may be presumed,
that the whole tax would be paid both immediately
and finally by the occupier*

If the tax be moderate, and the circumstances of
the country such, that it is either stationary or ad-
vancing, there would be little motive for the occu-
pier of a house to content himself willi one of a
worse description. But if the tax be high, or any
other circumstances should diminish the demand
for houses, the landlord's income would fall, for die
occupier would be partly compensated for the tax
by a diminution of rent. It is, however, difficult
to say, in what proportions that part of the tax,
which was saved by the occupier by a fall of rent,
would fall on the building rmit and the ground
rent. It is- probable that, in the first instance, both
would be aflfected; but as houses are, though
slowly, yet certainly perishable, and as no more
would be built, till the profits of the builder were
restored to the general level, building rent would,
after an interval, be restored to its natural piice.

CHAP. XIV*3 TAXES ON HOUSES. 229

As the builc^ receives rent only whilst the build-
ing endurest he could pay no part of the tax, under
the most disastrous circumstances, for any longer
period*.

The payment of this tax, then, would ultimately
fall on the occupier and ground landlord, but, " in
what proportion, this final payment would be di-
vided between them,*' says Adam Smith, " it is
not perhaps very easy to ascertain. The division
would probably be very different in different cir-
cumstances, and a tax ofthis kind might, according
to those different circumstances, affect very un-
equally both the inhabitant of the house, and the
owner of the ground.*'*

Adam Smith considers ground rents as peculiarly
fit subjects for taxation. ** Both ground rents, and
the ordinary rent of land," he says, " are a species
of revenue, which the owner in many cases enjoys,
without any care or attention of his own. Though
a part of this revenue should be taken from him, in
order to defray the expenses of the State, no dis-
couragement will thereby be given to any sort of
industry. The annual produce of the land and la-
bour of the society, the real wealth and revenue of
the great body of the people, might be the same
after such a tax as before. Ground rents, and the
ordinary rent of land axe, therefore, perhaps, the
^ecies of revenue, which can best bear to have a

* Book V. chap. iL

230 TAXES ON HOUSES. [ CHAP. XIV.

peculiar tax imposed upon them.'' It must be ad-
mitted that the effects of these taxes would be such
as Adam Smith has described ; but it would surely
be very unjust, to tax exclusively the revenue of
any particular class of a community. The burdens
of the State should be borne by all in proportion to
their means: this is one of the four maxims men-
tioned by Adam Smith, which should govern all
taxation. Rent often belongs to those who, aftef
many years of toil, have realised their gains, and
expended their fortunes in the purchase of land or
houses ; and it certainly would be an infringement
of that principle which should ever be held sacred^
the security of property, to subject it to unequal
taxation. It is to be lamented, that the duty by
stamps, with which the transfer of landed property
is loaded, materially impedes the conveyance of it
into those hands, where it would probably be made
most productive. And if it be considered, that
land^ regarded as a fit subject for exclusive taxation,
would not only be reduced in price,- to compensate
for the risk of that taxation, but in proportion to
the indefinite nature and uncertain value of the
risk, would become a fit subject for speculations,
partaking more of the nature of gambling, than of
sober trade, it will appear probable, that the hands
into which land would in that case be most apt to
fall, would be the hands of those, who posset more
of the qualities of the gambler, than of the qualities
of the sober-minded proprietor, who is likely to
employ his land to the greatest advantage.

CHAPTER XV.

TAXES ON PROFITS-

Taxes on those commodities, which are generally
denominated luxuries, fall on those only who make
use of them. A tax on wine is paid by the con-
sumer of wine. A tax on pleasure horses, or on
coaches, is paid by those who provide for them-
selves such enjoyments, and in exact proportion as
they provide them. But taxes on necessaries do
not affect the consumers of necessaries, in propor-
tion to the quantity that may be consumed by them,
but often in a much higher proportion. A tax on
com, we have observed, not only affects a manu-
facturer in the proportion that he and his family
may consume com, but it alters the rate of profits
of stock, and therefore also affects his income.
Whatever raises the wages of labour, lowers the
profits of stock J therefore every tax on any com-
modity consumed by the labourer, has a tendency
to lower the rate of profits.

A tax on hats will raise the price of hats ; a tax
on shoes, the price of shoes ; if this were not the
case, the tax would be finally paid by the manu-
facturer ; his profits would be reduced below the

f .

232 TAXES ON PROFITS. [CHAP. XV.

general level, and he would quit his trade. A
partial tax on profits will raise the price of the
commodity on which it falls : a tax, for example,
on the profits of the hatter, would raise the price
of hats ; for if his profits were taxed, and not those
of any other trade, his profits, unless he raised the
price of his hats, would be below the general rate
of profits, and he would quit his emplo}anent for
another.

In the same manner, a tax on the profits of the
'\ ! farmer would raise the price of corn ; a tax on the
profits of the clothier, the price of cloth ; and if a
tax in proportion to profits were laid on all trades,
every commodity would be raised in price. But if
the mine, which supplied us with the standard of
our money, were in this country, and the profits
of the miner were also taxed, the price of no com-
modity would rise, each man would give an equal
proportion of his income, and every thing would
be as before.

If money be not taxed, and therefore be permits
ted to preserve its value, whilst every thing else is
taxed, and is raised in value, the hatter, the farmer,
and clothier, each employing the same capitals,
and obtaining the same profits, will pay the same
amount of tax. If the tax be 100/., the hats, the
cloth, and the com, will each be increased in value
100/. If the hatter gains by his hats 1100/., instead
of 1000/., he will pay 100/. to Government for the

CHAP. XV.] TAXES ON PROFITS. 233

tax ; and therefore will still have 1000/. to lay out
on goods for his own consumption. But as the
cloth, com, and all other commodities, will be
raised in price from the same cause, he will not
obtain more for his 1000/. than he before obtained
for 910/., and thus will he contribute by his dimi-
nished expenditure to the eitigencies of the State ;
he will, by the payment of the tax, have placed a
portion of the produce of the land and labour of the
country at the disposal of Government, instead of
using that portion himself. If instead of expend-
ing his 1000/., he adds it to his capital, he will
find in the rise of wages, and in the increased cost
of the raw material and machinery, that his saving
of 1000/. does not amount to more than a saving of
910/. amounted to before.

If money be taxed, or if by any other cause its
value be altered, and all commodities remain pre-
cisely at the same price as before, the.profits of the
manufacturer and fanner will also be the same as
before, they will continue to be 1000/. ;. and as
they will each have to pay lOOL to Government,
they will retain only 900/^, which will give them a
less command over the produce of the land and
labour of the country, whether they expend it in
productive or unproductive labour. Precisely what
they lose. Government will gain* In the first case
the contributor to the tax would, for 1000/., have
as great a quantity of goods as he hefpre had for
910/. ; in the second, he would have only as much

234 TAXES ON PROFITS. [cHAP. XV.

as he before had for 900/., for the price of goods
would remain unaltered, and he would have only
900/1 to expend. This proceeds from the differ-
ence in the amount of the tax ; in the first case it
is only an eleventh of his income, in the second it
is a tenth ; money in the two cases being of a dif-
ferent value.

But although, if money be not taxed, and do
-y not alter in value, all commodities will rise in price,
they will not rise in the same proportion ; they wiU
not after the tax bear the same relative value to
each other which they did before the tax. In a
former part of this work, we discussed the efiects
of the division of capital into fixed and circulating,
or rather into durable and perishable capital, on the
prices of commodities. We shewed that two ma-
nufacturers might employ precisely the same
amount of capital, and might derive from it pre-
cisely the same amount of profits, but that they
would sell their commodities for very different
sums of money, according as the capitals they
employed were rapidly, or slowly, consumed and
reproduced. The one . might sell his goods , for
4000/1, the other for 10,000/., and they might bodi
employ 10,000/. of capital, and obtain 20 per cent
profit or 2000/. . The capital of one might consist,
for example, of 2000/. circulating capital, to be
reproduced, and 8000/. fixed; in buildings and
machinery; the capital of the other, on the con-
trary, might consist of 8000/. of circulating, and of
» • » • •/ "J f

*» {

't ..

».-'••

CHAP. XV.3 TAXES ON PROFITS.

235

only 2000/. fixed capital in machinery and build-
ings. Now, if each of these persons were to be
taxed ten per cent, on his income, or 200/., the
one, to make his business yield him the general
rate of profit, must raise his goods from 10,000/L
to 10,200/.; tlie other would also be obliged to
raise the price of his goods from 4000/. to 4200/.
Before the tax, the goods sold by one of these ma-
nufacturers were 2j times more valuable than the
goods of the other ; after the tax they will be 2.42
times more valuable : the one kind will have risen
two per cent, j the other five per cent. : conse-
quently a tax upon income, whilst money conti-
nued unaltered in value, woiUd alter the relative
prices and value of commodities. This would be
true also, if the tax instead of being laid on the
profits, were laid on the commodities themselves :
provided they were taxed in proportion to the va-
lue of the capital employed on their production,
they would rise equally, whatever might be their
value, and therefore they would not preserve the
same proportion as before. A commodity, which
rose from ten to eleven thousand poimds, would
not bear the same relation as before, to another
which rose from 2 to 3000/^ If under these cir-
cumstances, money rose in value, from whatever
cause it might proceed, it would not afiect the
prices of commodities in the same proportion. The
same cause which would lower the price of one
from 10,200/. to 10,000/. or less than two per cent,
would lower the price of the other from 4200/. to

236 TAXES ON FEOFITS. [cHAP. XV.

4000/1 or 4fi per cent. If they fell in any different
proportion, profits would not be equal ; for to make
them equal, when the price oT the first commodity
was 10,000/., the price of the second should be
4000/. J and when the price of the first was
10,S00/., the price of the other should be 40001

The consideration of this fact will lead to the
understanding of a very important principle, which,
I believe, has never been adverted to. It is this ;
that in a country where no taxation subsists, the
alteration in the value of money arising firom
scarcity or abundance will operate in an equal pro-
portion on the prices of all commodities ; that if a
commodity of 1000/. value rise to 1200/., or fall to
800/., a commodity of 10,000/. value will rise to
12,000/. or fall to 8000/. ; but m a country where
prices are artificially raised by taxation, the abim-
dance of money from an influx, or the exportation
and consequent scarcity of it from foreign demand,
will not operate in the same proportion on the
prices of all commodities ; some it will raise or
lower 5, 6, or 12 per cent., others 3, 4, or 7 per
cent. If a country were not taxed, and money
should &11 in value, its abundance in every market
would produce similar eflects in each. If meat
rose 20 per cent., bread, beer, shoes, labour, and
every commodity, would also rise 20 per cent; it
is necessary they should do so, to secure to eadh
trade the same rate of profits. But this is iio longer
true when any of these commodities ia taxed ; iff

CHAP* XVO TAXES ON PROFITS. 2^7

in that case they should all rise in proportion to the
fall in the value of money, profits would be render^-
ed unequal ; in the case of the commodities taxed^
profits would be raised above the general level, and
capital would be removed from one employment
to another, till an equilibrium of profits was restored,
which could only be, after the relative prices were
altered.

Will not this principle account for the different
efiects, which it was remarked were produced on
the prices. of commodities, from the altered value
of money during the Bank^restriction ? It was
objected to those who contended that the currency
was as that period depredated, from the too great
abundance of the paper circulation, that, if that
were the fact, all commodities ought to have risen
in the same proportion ; but it was found that
many had varied considerably more than others,
and thence it was inferred that the rise of prices
was owing to* something aflfecting the value of com-
modities, and not to any alteration in the value of
the currency. It appears, however, as we have
just seen, that in a country where commodities are
taxed, they will not all vary in price in the same
proportion, either in consequence of a rise or of a
fall in the vahie of currency.

• If the profits of all trades were taxed, excepting
-the profits of the farmer, all goods would rise in
money value, excepting raw produce* The fanner

QSS TAXES ON PROFITS.. £CHAP. XV.

TToiild have the same corn income as before, and
would sell his corn also for the same money price ;
but as he would be obliged to pay an additional
price for all the commodities, except com, which
he consumed, it would be to him a tax on expen-
diture. Nor would he be relieved from this tax by
an alteration in the value of money, for an altera-
tion in the value of money might sink all the taxed
commodities to their former price, but the untaxed
one would sink below its former level ; and, there-
fore, though the farmer would purchase his com-
modities at the same price as before, he would have
less money with which to piurchase them.

The landlord, too, would be precisely in the same
situation, he would have the same com, aiid the
same money-rent as before, if all commodities rose
in price, and money remained at the same value ;
and he would have the same com, but a less money-
rent, if all commodities remained at the same price:
so that in either case, though his income were not
directly taxed, he would indirectly contribute to-
wards the money raised.

But suppose the profits of the farmer to be also
taxed, he then would be in the same situation as
other traders : his raw produce would rise, so that
he would have the same money revenue, after paying
the tax, but he would pay an additional price for
all the commodities he consumed, raw produce in-
cluded.

CHAP. XV.3 TAXES ON PROFITS. 239

His landlord, however, would be differently'
situated, he would be benefited by the tax on his :
tenant^s profits, as he would be compensated for '
the additional price at which he would purchase
his manufactured commodities, if they rose in price ;
and he would have the same money revenue, if in
consequence of a rise in the value of money, com-
modities sold at their former price. A tax on the
profits of the farmer, is not a tax proportioned to
the gross produce of the land, but to its net pro-
duce, after the payment of rent, wages, and all
other charges. As the cultivators of the different
kinds of land. No. 1, 2 and 3, employ precisely
the same capitals, they will get precisely the same
profits, whatever may be the quantity of gross pro-
duce, which one may obtain more than the other ;.
and consequently they will be all taxed alike. Sup*
pose the gross produce of the land of the quality
No. 1 to be 180 qrs., that of No. 2, I70 qrs., and
of No. 3, 160, and each to be taxed 10 quarters,
the di£ference between the produce of No. 1, No.
2 and No. 3, after paying the tax, will be the same
as before ; for if No. 1 be reduced to I70, No»
2 to 160, and No. 3 to 150 qrs. ; the difference be-
tween 3 and 1 will be as before, 20 qrs. ; and of
No. 3 and No. 2, 10 qrs. If, after the tax, the
prices of com and of every other commodity shoidd
remain the same as before, money rent as well as
com rent, would continue unaltered ; but if the
price of com, and every other commodity should
rise in consequence of the tax, money rent will

840 TAXES ON PROFITS, [CHAP. XV.

also rise in the same proportion. If the price of
com were 4/. per quarter, the rent of No. 1 would
be SOL, and that of No. S» 401 ; but if com rose
five per cent.) or to 4/. 4^., rent would also rise five
per cent., for twenty quarters of com would then
be worth 84/., and ten quarters 4S/. ; so that in every
case the landlord will be unaffected by such a tax.
A tax on the profits of stock always leaves com rent
unaltered, and therefore money rent varies with
the price of com ; but a tax on raw produce, or
tithes, never leaves com rent unaltered, but gene-
rally leaves money rent the same as before. In
another part of this work I have observed, that if a
land-tax of the same money amount, were laid on
every kind of land in cultivation, without any al-
lowance for dijBPerence of fertility, it would be very
imequal in its operation, as it would be a profit to
the landlord of the more fertile lands. It would
raise tliye price of com in proportion to the burden
borne by the farmer of the worst land ; but this
additional price being obtained for the greater
quantity of produce yielded by the better land, far-
mers of such'land would be benefited during thek
Jeases, and aflerwards^ th^ advantage woidd go to
the landlord in the form of an increa^ of rent. The
efifect of an equal tax on th€l profits of the fanner
is precisely the same ; it liaises the money rent of
the landlords, if money retains the same value;
but as the profits of all other trades are taxed as
well as those of the farmer, and consequently the
prices of all goods, as well as corn^ are raised^ the

CHAP. XV.] TAXES OV PlIOFITS. 241

landlord loses as paucli by the increased money
price of the goods and com on \rhich his rent
is expended^ as he gains by the rise of his rent«
If money should rise in value, and all things
should, after a tax on the pi^ofits of stock, fall to
their former prices, rent also would be the same
as before^ The landlord would receive the same
money rent, and would obtain all the commodities
on which it was expended at th^ former price ;
so that under all circumstances he would continue
untaxed *.

This circumstance is curious. By taxing the
profits of the farmer you do not burthen him more
than-if you exempted his profits from the tax, and
the landlord has a decided interest that his tenants'
profits should be taxed, as it is cmly on that condi*
tion that he lumself continues really untaxed^

A tax on the profits of capital would also .affect
the stock-hdider, if all commodities were to rise in
proportion to the tax, although his dividends con-
tinued untaxed ; but if, from the alteration in the
value of money, all commodities were to sink to
their former price, the stock-holder would pay no-

•

• That the pi'ofifa of flie fafmer only should be iMe6, and
not the profits of any other capitalist, would be highly bene-
ficial to landlords. It would, in fact, be a tax on the con-
sumers ofraw produce, partly for the benefit of the State, and
partly for the benefit of landlords.

r
i (

f •
/

342 TsAXES ON PROFITS. QCHAP. XY.

thing towards the tax ; he woi\Id purchase all \as
commodities at the samQ price, but would still re-
ceive the same money dividend.

If it be agreed, that bylaxing the profits of one
manufacturer only, the price of his goods would
rise, to put him on an equality with all other ma^-
nufacturers ; and that by taxing the profits of two
manufacturers, the prices of two descriptions of
goods must rise, I do not see how it can be dis-
puted, that by taxii>g the profits of all manufac-
turers, the prices of all goods would rise, provided
the mine which si^plied us with money, were in
this country, and continued untaxed. But as
money, or the standard of money, is a commodity
imported from abroad, the prices of all goods could
not rise ; for such an effect could not take place
without an additional quantity of money *, which

• On further consideration, I doubt wlietherany more money
would be required to circulate the same quantity of commo-
dities, if their prices be raised by taxation, ftnd not by difficulty
of production. Suppose 100,000 quarters of corn to be sold in
a certain district, and in a certain time, at 4/. per quarter, and
that in consequence df a direct tax of 8*. per quarter, corn rises
to 4/. 8*., the Same quantity of money, I thiii, and no more,
would be required to circulate this com at the increased price.
If I before purchased 1 1 quarters at 4i, and in consequence of
the tax am obliged to reduce my consumption to 10 quarter^ I
shall not require more nopney, for in all cases I shall pay 44/»
for my com. The public would, in fact, consume one-eleventh
less, and this quantity would be consumed by Government.

The

<?HilP, XY.2 TAXES QN 9W}¥m» 9^.

coidd not be obtained in: exchai^e for ddar gooda^
as was shewn in page 101. i& however, ^Uch a mt?
could take plac^ it could npt be pennaneiit> forife
would have a powerful influence ^m fgre^ trade.
In return for commodities imported^ . those dear
goods could not be exportedt and therefore we
should for a time continue to buy, althou^ we
ceased to sell ; and should export money, or bul-
lion, till the relative prices of commodities were
nearly the same as before. It appears to me ab-
solutely certain, that a well regulated tax on pro-
fits, would ultimately restore commodities both
of home and foreign manufacture, to the same
money price which they bore before the tax was
imposed.

As taxes on raw produce, tithes, taxes on wages»
and on the necessaries of the labourer, will, jby
raising wages, lower profits, they will dl, though
not in an equal degree, be attended with the same
efiects.

The discovery of machinery, which materially

The money necessary to purchase it, would he derived from the
8s» per quarter, to be received from the farmers in the shape of
a tax, but the amount levied would at the same time be paid to
them for their com; therefore the tax is in fact a tax in kind,
and does not make it necessary that any more money should be
used, or, if any, so little, that the quantity may be safely ne-
glected.

R 2

4M TAXES ON PROFIT^; [cHAP. XT.

improves home manufkctares, ^dwajs tends to luse
the relative value of money, and therefore to en*
courage its importation. All taxation, all increased
impediments, either to the manufacturer, or the
grower of commodities, tend, on the contraiy, to
lower the relative value of money, and therefore to
encourage its exportation.

CHAFPER XVL

TAXES ON WAGES.

Taxes on wages wiU raise wages, and therefore
will diminish the rate of the profits of stock. We
have already seen that a tax on necessaries will
raise their prices, and will be followed by a rise of
wages. The only difierence between a tax on ne*
cessaries, and a t^x on wages is, that the former
will necessarily be accompanied by a rise in th^
price of necessaries, but the latter will not ; to-
wards a tax on wages, consequently, peither the
stock-holder, the landlord, nor any other class but
the employers of labour will contribute, A tax
on wages is wholly a tax on profits, a tax on ne<
cessaries is partly a tax on profits, and partly a tax
on rich consumers. The ultimate effects which
will result from such taxes then, are precisely the
same as tliose which r^ult from a direct tax oo
profits^

** The wages of the inferior classes of work*
men," says Adam Smith, " I have endeavoured
to shew in the first book, are every where neces*
sarily regulated by two difterent circumstances ;
the demand for labour, and the ordinary or average
price of provisions. The demand for labour, ac-

» *

^46 TAXES ON WAGES. [[CHAP. XVU

cording as it happens to be either increasing, sta-
tionary, or declining, or to require an increasing,
stationary, or declining population, regulates the
subsistence of the labourer, and determines in
what degree it shall be either liberal, moderate, or
scanty. The ordmary or fgverage price of provi-
sions determines the quantity of money which
inust be paid to the workman, in order to enable
him, one year with another, to purchase this liberal,
moderate, or scanty subsistence. While the de-
mand for laboiu", and the price of provisions, there-
fore, remain the same, a direct tax upon the wages
of labour can have no other efiect than to raise
them somewhat higher than the tax."

To the proposition^ as it is here advanced by
Dr. Smith, Mr. Buchanan offers two objections.
First, he denies that the money wages of labour
are regulated by the price of provisions ; and se-
condly, he denies that a tax on the wages of Labour
would raise the price of labour. On the first point,
Mr. Buchanan'^s argument is as follows, page 5^ :
" The wages of labour, it has already been re-
maked, consist not in money, but in what money
purchases, namely, provisions and other neces^
saries ; and the allov^nce of the labourer out of
the common, stock, will always be in proportion to
the supply. Where provisions are cheap and
abundant^ his share will be the larger ; and where
they are scarce and dear^ it will be the less. His
\vages will always give him his just share, and they

r ^ . i.

- r^
.'.<.«

CHiiP. XVI.3 TAX£S ON WAGES. 247

cannot give him more. It is an (pinion, indeed,
adopted by Dr. Smith and most other writers, that
the money price of labour is regulated by the
money price of provisions, and that when pro*
visions rise in price, wages rise in proportion. But
it is dear that the price of labour has no necessary
connexion with the price of food, since it depends
entirely on the supply of labourers compared with
the demand* Besides, it is to be observed, that
the high price of provisions is a certain indication
of a deficient supply, and arises in the natural
course of things, ibr the purpose of retarding the
consumption. A smaller supply of food^ shared
among the same number of consumers, w31 evi-
dently leave a smaller portion to each, and the
labourer must bear his share of the common want.
To distribute this burden equally, and to prevent
the labourer from consuming subsistence so freely
as before, the price rises. But wages it seems
must rise along with it, that he may still use the
same quantity of a scarcer commodity ; and thus
nature is represented as counteracting her own
purposes : first, raising the price of food, to di-
minish the consumption, and afterwards, raising
wages to give the labourer the same supply as
before.*'

In this argument of Mr. . Buchanan, there ap«
pears to me to be a great mixture of truth and
error. Because a high price of provisions is some-
times occasioned by a deficient supply, Mr. Bu«

; (

S48 TAXES ON WAOES. [CHAP. XTI.

chanan assumes it as a certain indicatioii of d^
cient supply. He attributes to one cause exdu-
fiively, that which may arise from many. It is un-
doubtedly true, that in the case of a deficient sup*
ply, a smaller quantity will be shared among the
same number of consumers, and a smaller portion
will fall to each. To distribute this privation
equally, and to prevent the labourer from consume
ing subsistence so freely as before, tlie price rises.
It must, therefore, be conceded to Mr. Buchanan,^
that any rise in the price of provisions, occasioned
by a deficient supply, will not necessarily raise the
money wages of labour, as the consumption must
be retarded ; which can only be efibcted by dimi*
nishing the power of the consumers to purchase.
But, because the price of provisions is raised by a
deficient supply, we are by no means warranted in
concluding, as Mr. Buchanan appears to do, thst
there may not be an abundant supply, with a high
price ; not a high price with regard to money only,
-but with regard to all other things.

The natural price of commodities, which always
ultimately governs their maiket price, depends on
the fadlity of production; but the quantity prcv
duced is not in proportion to that facility. Al-
though the lands, which are now taken into culti-
vation, are much inferior to the lands in cultivstion
three centuries ago, and, therefore, the difiiculty
of production is increased, who can entertain any
doubt, but that the quantity produced now, very

CHAP. XTI.] TAX£3 ON WAGES. 349

far exceeds the qiuwtity then produced? Not
only is a hi^ price compatible with an increased
supply* but it rarely fails to accompany it. I^
then» in consequence of taxation, or of difficulty
of production, the price of provisions be raised, and
the quantity be not diminished, the money wages
of labour will rise; for, as Mr. Buchanan has justly
observed, *^ The wages of labour consist not in
money, but in what money purchases, namely, pro*
visions and other necessaries; and the allowance of
the labourer out of the common stock, will always
be in proportion to the supply/'

With respect to the second pointy whether a tax
on the wages of labour would raise the price of
labour, Mr. Buchanan says» *^ After the labourer
has received the fail recompense of his labour, how
can he have recourse on his employer, for what he
is afterwards compelled to pay away in taxes?
There is no law or principle in iiuman affiiirs to
warrant such a conclusion. After the labourer has
received his wages, they are in his own keeping,
and he must, as far as he is able, bear the burthen
of whatever exactions he may ever afterwards be
exposed to : for he has clearly no way of compelling
those to reimburse him, who have already paid him
the fair price of his work.'' Mr, Buchanan has
quoted, with great approbation, the following able
passage from Mr. Malthus's Work on Poptdation,
which appears to me completely to answer his ob-
jection, " The price of labour, when left to find

250 TAJ^ES ON VTAOES. [CHAF* XVU

its natural level, is a most important pofitical baro*
meter, expressing the relation between the supply
of provisions, and the demand for them, between
the quantity to be consumed, and the number of
consumers^ and, taken on the average, independ*
ently of accidental circumstances, it further ex*
presses, clearly, the wants of the society respecting
population} that is, whatever may be the number
of children to a marriage necessary to maintain ex-
actly the present population, the price of labour
will be just sufficient to support this number, or be
above it, or below it, according to the state of the
real funds, for the maintenance of labour^ whether
stationary, progressive, or retrograde. Instead,
however, of c<msidering it in this light, we consider
it as something which we may raise or depress at
pleasure, something which depends princqially on
his Majesty's justices of the peace. When an ad*
vance in the price of provisions. already expresses
that the demand is too great far the supply, in
order to put the labourer in the same condition as
before, we raise the price of labour, that is, we in-
crease the demand, and are then much surprised,
that the price of provisions continues rising. In
this, we act much in the same manner, as if, when
the quicksilver in the common weather glass, stood
at stormy^ we were to raise it by some forcible
pressure to settled fair, and then be greatly asto-
nished that it continued raining/'

«<

The price of labour will express, clearly, the

CHAP. XTiO TAXES 01^ WAGES. 251

wants of the society respecting population-/* it
-will be just sufficient to support the population,
which at that time the state <rf the funds for the
maintenance of labourers, requires. If the labourer's
wages were before only adequate to supply the re-
quisite population, they will, after the tax, be in-
adequate to that supply, for he will not have the
same funds to expend on his family. Labour will,
therefore, rise, because the demand continues, and
it is only by raising the price, that the supply is
not checked.

Nothing is more common, than to see hats or
malt rise when taxed ; they rise because the requi-
-slte supply would not be afforded if they did not
rise: so with labour, when wages are taxed, its
price rises^ because, if it did not, the requisite po-
pulation woYild not be kept up. Does not Mr.
Buchanan allow all that is contended for, when he
says, that *' were he (the laboiu'er) indeed reduced
to a bare allowance of necessaries, he would then
sufier no further abatement of his wages, as he
could not on such conditions continue his race ?**
Suppose the circumstances of the country to be
such, that the lowest labourers are not only called
iqp€^ to continue their race, but to increase it;
th^ wages would be regulated accordingly. Can
they multiply in the degree required, if a tax takes
from them a part of their wages, and reduces them
to bare necessaries ?

fi52 TAXES ON WAGES. [CHAP. XYL

It is» undoubtedly true, that a taxed commodity
will not rise in pr<^rtion to the tax, if the demand
for it diminish, and if the quantity cannot be re-
duced. If metallic money were in general use,
its value would not for a considerable time be in-
creased by a tax, in proportion to the amount of
the tax, because at a higher price, the demand
would be diminished, and the quantity would not
be diminished ; and unquestionably the same cause
frequently influences the wages of labour ; the num*
ber of labourers cannot be rapidly increased or dir
minished in proportion to the increase or diminu-
tion of the fund which is to employ them ; but in
the case supposed, there is no necessary diminution
of demand for labour, and if diminished, the de^
mand does not abate in proportion to the tax. Mr.
Buchanan forgets that the fund raised by the ta:^
is employed by Government in. maintaining la^
bourers, unproductive indeed, but still labourers.
If labour were not to rise when wages are taxed,
there would be a great increase in the competi*
tion for laboiu, because the owners of capital,
who would have nothing to pay towards such
a tax, would have the same funds for employing
labour ; whilst the Govermnent who received the
tax would have an additional fund for the same
purpose. Government and the people thus becofoe
competitors, and the consequence of their compet
tition is a rise in the price of labour. The some
number of men only will be employed^ but they
will be employed at additional wages.

CHAP. XVI J TAJtfift ON WA6fid« ♦ 253

If the tax had been laid at once on the people
of capital^ their fund for the maintenance of labour
would have been diminished in the very same de-
gree that the fund of Government for that purpose
had been increased ; and therefore there would
have been no rise iii wages; for though there
would be the same demand, there would not be the
same competition. If when the tax were levied,
Government at once exported the produce of it as '
a subsidy to a foreign State, and if therefore these ^
funds were devoted to the maintenance of foreign,
and not of English labourers, such as soldiers, ""
sailors, &c. &c. ; then, indeed, there would be a
diminished demand for labour, and wages might
not increase, although they were taxed ; but the
same thing would happen if the tax had been laid
on consumable commodities, on the profits of stock,
or if in any other manner the same sum had been
raised to supply this subsidy : less labour could be
employed at home. In one case wages are pre-
vented from rising, in the other they must abso-
lutely falL But suppose the amount of a tax on
wages were, after being raised on the labourers,
paid gratuitously to their employers, it would in-
crease their money fund for the maintenance of
labour, but it would not increase either commodi-
ties or labour. It would consequently increase the
cmnpetition amongst the employers of labour, and
the tax would be ultimately attended with no loss
either to master or labourer. The master would
pay an increased price for labour ; the addition

r .

.- *

254^ TAXES ON WAGES. f CBAP. XVK

yifjbicli the labourer received would be paid as a tax /
to ^gQvemment, and would be again returned to the
masters* It must, however, not be forgotten, that
the produce of taxes .is generally wastefully ex-
pended, they ^re always obtained at the expense
of the people's comforts and enjoyments, and com-
mQnly either diminish capital or retard its accumu-
lation. By diminishing capital they tend to dimi-
nish the real fund destined for the maintenance of
labour ; and therefore to diminish the real demand
for it. Taxes then, generally, as far as they im-
pair the real capital of the country, dimini^ the
d^nand for labour, and therefore it is a probable,
but not a necessary, nor a peculiar consequence of
a tax on wages, that though wages would rise,
they would liot rise by a sum precisely equal to
the tax.

Adam Smith, as we have seen, has fully allow-
ed that the ei9fect of a tax on wages, would be to
raise wages by a sum at least equal to the tax, and
would be finally, if not immediately, paid by the
employer of labour. Thus far we fully agree; but
we essentially differ in our views of the subsequent
operation of such a tax.

<^ A direct tax upon the wages of labour^ there-
fore," says Adam Smith, '* though the labourer
might perhaps pay it out of his hand, could not
properly be said to be even advanced by him j at
least if the demand for labour and the average price

CHAP. Xyi.3 TAXKS OS WAG£S* C55

of provisions remained the same after the tax as. be-«
fore it. In all such cases, not only the tax but
something more than the tax, would in reality be
advanced by the person who immediately employed
hinu . The final payment would in different cases
fall upon di£krent persons. The rise which such a
tax might occasion in the wages of manufacturing
labour, would be advanced by the master manu-
facturer, who would be entitled and obliged to charge
it with a profit^ upon the price qf his goods. The
rise which such a tax might occasion in country
labour, would be advanced by the £irmer, who, in
order to maintain the same number of labourers as
before, would be obliged to employ a greater capi^
taL In order to get back this greater capital, /o-
geiher with the ordinary prqfits of stocky it would be
necessary that he should retain a larger portion, or
what comes to the same thing, the price of a
larger portion, of the produce of the land^ and
consequently that he should pay less rent to the
landlord. The final payment of this rise of wages
would in this case fall upon the landlord, together
with the additional profits qf the farmer who had ad^
vanced iL In all cases a direct tax upon the wages
Off labour must, in the long run, occasion both a
greater reduction in the rent of land, and a greater
rise in the price of manufactured goods, than would
have followed, from the proper assessment of a sum
equal to the product of the tax, partly upon tlie
rent of land, and partly upon consumable commo*
dities.'^ Vol. iii. p. 337. In this passage it is asr

256 TAXES ON WAGES. [CHAP. XVI.

serted that the additional wages paid by farmers
will ultimately fall on the landlords, who will re-
ceive a diminished rent; but that the additional
wages paid, by manu^turers will occasion a rise
in the price of manufactured goods, and will there-
fore fall on the consumers of those commodities.

Now, suppose a society to consist of landlords,
manufacturers, farmers and labourers, the labour-
ers, it is agreed, would be recompensed for tlie
tax;-^but by w*hom? — ^who would pay that portion
which did not fall on the landlords?— 4he manufac-
turers could pay no part of it ; for if the price of
their commodities should rise in proportion to the
additional wages they paid, they would be ia a bet^
ter situation after than before the tax. If the
clothier, the hatter, the shoe-maker, &c., should be
each able to raise the price of their goods 10 per
cent.,----«upposing 10 per cent, to recompense them
completely for the additional wages they paid, — if,
as Adam Smith ^ys, '* they would be entitled and
obliged to charge the additional wages with a pr^
upon the price of their goods,'' they could each
consume as much as before of each other's goods,
and therefore they would pay nothing towards the
tax. If the clothier paid more for his h^ts and
shoes, he would receive more for his doth, and if
the hatter paid more for his cloth and shoes» he
would receive more for his hatsw All manufactured
commodities then would be bought by them with
as much advantage as before, and inasmuch aaconi

CHAP. XVI.3 TAXES ON WAGES. - 257

would not be raised in price which is Dr. Smith's
supposition whilst they had an additional sum to
lay out upon its purchase, they would be benefited,
and not injured by such a tax.

If then neither the labourers nor the manufac-
turers would contribute towards such a tax ; if the
farmers would be also recompensed by a fail of
rent, landlords alone must not only bear its whole
weight, but they must also contribute to the in*
creased gains of the manufacturers. To do this,
however, they should consume all the manufac-
tured commodities in the country, for the addi-
tional price charged on the whole mass is little
more than the tax originally imposed on the labour-
ers in manufactures.

Now it will not be disputed that the clothier,
the hatter, and all other, manufacturers, are con-
sumers of each other's good ; it wiU not be dis-
puted that labourers of all descriptions consume
soap, cloth, shoes, candles, and various other com-
modities ; it is therefore impossible that the whole
weight of these taxes should fall on landlords only.

But if the labourers pay no part of the tax, and
yet manufactured commodities rise in price, wages
must rise, not only to compensate them for the
tax, but for the ^increased price of manufactured
necessaries, which, as far as it affects agricultural
labour, will be a new cause for the fall of rent ;

d- •

258 TAXES O'S WAGES. £CH AP. XVI.

and, as far as it affects manufacturing labour, for
a further rise in the price of goods. This rise in
the price of goods will again operate on wages, and
/ the action and re-action first of wages on goods,
and then of goods on wages, will be extended with-
out any assignable limits. The arguments by
which this theory is supported, lead to such absurd
conclusions, that it may at once be seen that the
principle is wholly indefensible.

All the effects which are produced on the profits
of stock and the wages of labour, by a rise of rent
and a rise of necessaries, in the natural progress of
society, and increasing difficulty of production, will
-equally follow from a rise of wages in consequence
of taxation ; and, therefore, the enjoyments of the
labourer, as well as those of his employers, will be
curtailed by the tax j and not by this tax particu-
larly, but by every other which should raise an equal
, * .-^amount, as they would all tend to diminish the
fund destined for the maintenance of labour.

The error of Adam Smith proceeds in the first
place from supposing, that all taxes paid by the
farmer must necessarily fall on the landlord, in the
shape of a deduction from rent. On this subject, I
have explained myself most fully, and I trust that
it has been shewn, to the satisfaction of the reader,
that since much capital is employed on the land
which pays no rent, and since it is the result ob-
tained by thi9 capital which regulajtes the price of ^

' ■ ' " / .

■ ■■■'\ /J^ *'^ -i ii^K

< i • «

CHAP. XVI.3 TAXES OtJ WAGES. 259

raw produce, no deduction can be made from rent;
and, consequently, either no remuneration will be
made to the farmer for a tax on wages, or if made,
it must be made by an addition to the price of raw
produce.

If taxes press unequally on the farmer, he will
be enabled to, raise the price of raw produce, to
place himself on a level with those who carry on
other trades ; but a tax on wages, which would
not affect him more than it would affect any other
trade, could not be removed or compensated by a
high price of raw produce ; for the same reason
which should induce him to raise the price of com,
namely, to remunerate himself for the tax^ would
induce the clothier to raise the price of cloth, the
shoemaker, hatter, and upholsterer, to raise the
price orshoes, hats, and furniture.

If they could all raise the price of their goods»
so as to remunerate themselves, with a profit, for
the tax ; as they are all consumers of each other's
commodities, it is obvious that the tax could never
be paid ; for who would be the contributors if all
were compensated ? . *^ ^

I hope, then, that I have succeeded in shewing,
that any tax which shall have the effect of raising^/
wages, will be paid by a diminution of profits, snd,
therefore, that a tax on wages is in fact a tax on .
profits.

* -

260 TAXES ON WAGES. ^CHAP. XVI.

This principle of the division of the produce of
labour and Capital between wages and profits, which
I Jiave attempted to establish, appears to me so
certain, that excepting in the immediate e£fects, I
should think it of little importance whether the
profits of stock, or the wages of labour, were taxed.
By taxing the profits of stock, you would probably
alter the rate at which the funds for the mainten-
ance of labour increase, and wages would be dis-
proportioned to the state of that fund, by being
too high. By taxing wages, the reward paid to
the labourer would also be disproportioned to the
state of that fund, by being too low. In tlie one
i case by a fall, and in the other by a rise in money
wages, the natural equilibrium between profits and
wages would be restored. A tax on wages, then,
does not fall on the landlord, but it tails on the
profits of stock : it does not '^ entitle and oblige
the master manufacturer to charge it with a profit
on the prices of his goods," for he will be unable
to increase their price, and therefore he must
/o himself wholly and without compensation pay such

a tax*.

* M. Say appears to have imbibed the general opinion on this
subject. Speaking of corn, he says, '^ tlience it results, that iti
price influences the price of all other commodities. A farmer,
a mani]^turer, or a merchant, employs a certain number of
workmen, who all have occasion to consume a certain quantity
of com. If tlie price of com rises, he is obliged to raise,
in an equal proportion, the price of his productions.** Vol. i-
p. 255.

CHAP. XVI.]] TAXES ON WAGES. S6l

If the efifect of taxes on wages be such as I have
described, they do not merit the censure cast upon
them by Dr. Smith. He observes of such taxes,
** These, and some other taxes of the same kind,
by raising the price of labour, are said to have
ruined the greater part of the manufactures of
Holland. Similar taxes, though not quite so heavy,
take place in the Milanese, in the states of Genoa,
in the duchy of Modena, in the duchies of Parma,
Placentia, and Gruastalla, and in the ecclesiastical
states. A French author of some note, has pro-
posed to reform the finances of his country, by sub*
stituting in the room of other taxes, this most
ruinous of aU taxes. « There is nothing so absurd,*
says Cicero, ' which has not sometimes been assert-
ed by some philosophers.* ** And in another place
he says : ^* taxes upon necessaries, by raising the
wages of labour, necessarily tend to raise the price
of all manufactures, and consequently to diminish
the extent of their sale and consumption.** They
would not merit this censure, even if Dr. Smith*s
principle were correct, that such taxes would en*
hance the prices of manufactured commodities;
for such an effect could be. only temporary, and
would subject us to no disadvantage in our foreign
trade. If any cause should raise the price of a few
manufactured commodities, it would prevent or
check their exportation ; but if the same cause ope-
rated generally on all, the effect would be merdy
nominal, and would neither interfere with their re«
lative value, nor in any degree diminish the stimu«

26s TAXES ON WAGES. QCHAP. XVI*

Itis to a trade of barter, which all commerce, both
foreign and domestic, really is.

I have already attempted to shew, that when any
cause raises tlie prices of all commodities, the effects
are nearly similar to a fall in the value of money.
If money falls in value, all commodities rise in
price ; and if the efiect is confined to one country,
it will affect its foreign commerce in the same way
as a high price of commodities caused by general
taxation ; and, therefore, in examining tlie efiects of
a low value of money confined to one country, we
are also examining the effects of a high price of
commodities confined to one country. Indeed,
Adam Smith was fully aware of the resemblance
between these two cases, and consistently maintain-
ed that the low value of money, or, as he calls it,
of silver in Spain, in consequence of the prohibition
against its exportation, was verj^ highly prejudicial
to the manufactures and foreign conmierce of
Spain. ** But that degradation in the value of
silver, which being the efiect either of tlie peculiar
situation, or of the political institutions of a parti*
cular country, takes place only in that country, is
a matter of very great consequence, which, fiur
from tending to make any body really richer, tends
to make every body really poorer. The rise in tie
mmey price qf all commodities^ which is in this case
peculiar to that cauntrtf^ tends to discourage more or
less every sort of industry which is carried on within
i^ wd to enable foreign nations, by furnishing

CHAP. XTI.J TAXES Oif WAGES. HGS

almost. all softs of goods for a unaller quantity of
silver than its own workmen can affi)rd to do, to
undersel them not only in the foreign, but even in
the home market.'* Vol. ii. page 278.

One, and I think the only one, of the disadvan-*
tages of a low value of silver in a country, pro*
ceeding from a forced abundance, has been ably
explained by Dr. Smith. If the trade in gold and
silver were free, " the gold and silver which would
go abroad, would not go abroad for nothing, but
would bring back an equal value of goods of some
kind or another. Tliose goods, too, would not be
all matters of mere luxury and expense, to be con-
sumed by idle people, who produce nothing in
return for their consumption. As the real wealth
and revenue of idle people would not be augment-
ed by this extraordinary exportation of gold and
silver, so would neither their consumption be aug-
mented by it. Those goods would, probably the
greater part of them, and certainly some part of
them, consist in materials, tools, and provisions^
for the employment and maintenance of industrious
people, who would reproduce with a profit, the fiill
value of their consumption. A part of the dead
stock of the society would thus be turned into ac-
tive stock, and would put into motion a greater
quantity of industry than had been employed be-
fore."

By not allowing a free trade in the precious

.* i i *•■'*'

S64i TAXES ON WAGES. [CHAP, XVI.

metals when the prices of commodities are raised,
either by taxation, or by the influx of the precious
metals, you prevent a part of the dead stock of the
society from being turned into active stock — you
prevent a greater quantity of industry from being
employed. But this is the whole amount of the
evil ; an evil never felt by those countries where
the exportation of silver is either allowed or con-
nived at.

;, The exchanges between countries are at par only,
whilst they have precisely that quantity of currency
which in the actual situation of things they should
have to carry on the circulation of their comniodi-
ties. If the trade in the predous metals were
perfectly free, and money could be exported with-
out any expense whatever, the exchanges could be
no otherwise in every country than at par. If the
trade in the precious metals were perfectly free, if
they were generally used in circulation, even with
the expenses of transporting them, the exchange
could never in any of them deviate more from par,
than by these expenses.* These principles, I be-
lieve, are now no where disputed. If a country
used paper money, not exchangeable for specie,
and, therefore, not regulated by any fixed standard,
the exchanges in that country might deviate from
par, in the same proportion as its money might be
multiplied beyond that quantity which would have
been allotted to it by general commerce, if the
trade in money had been free, and the precious

CHAP. XVI.3 TAXES ON WAGES* 265

metals had been used, either for money, or for the
standard of money.

If by the general operations of commerce, 10
millions of pounds sterling, of a known weight and
fineness of bullion, should be the portion of
England, and 10 millions of paper pounds were
substituted, no effect would* be produced on the
exchange; but if by the abuse of the power of
issuing paper money, 1 1 millions of pounds should
be employed in the circulation, the exchange would
be 9 per cent, against England; if 12 millions were
employed, the exchange would be 16 per cent.;
and if 20 millions, the exchange would be 50 per
cent, against England. To produce this effect it
is not, however, necessary that paper money should
be employed: any cause which retains in circula-
tion a greater quantity of pounds than would have
circulated, if commerce had been free, and the pre-
cious metals of a known weight and fineness had
been used, either for money, or for the standard of
money, would exactly produce the same effects.
Suppose that by clipping the money, each pound
did not contain the quantity of gold or silver which
by law it should contain, a greater number of such
pounds might be employed in the circulation, than
' if they were not clipped. If from each pound one
tenth were taken away, 1 1 millions of such pounds
might be used instead of 10; if two tenths were
taken away, 12 millions might be employed; and
if one half were taken away, 20 millions might not

966 TAXES ON WAGES* [[CHAP* XVi.

be found superfluous* If the latter sum were used
instead of 10 millions, every commodity in fio^land
would be raised to double its former price, and the
exchange would be 60 per cent, against England ;
but this would occasion no disturbance in foreign
commerce, nor discourage the manu&cture of any
one commodity. If, for example, cloth rose in
England iirom SOL to A^L per piece, we should just
as freely export it after as before the rise» for a
compensation of 50 per cent would be made to
the foreign purchaser in the exchange; so that

with 20L of his money, he could purchase a biU
which would enable him to pay a debt of 40/L in
England. In the same manner if he exported a
commodity which cost 90L at home, and which
sold in England for 40/. he would only receive ^/L,
for 40/. in England would only purchase a bill for
SOL on a foreign country. The same effects would
follow from whatever cause 20 millions could be
forced to perform the business of circulation in
England, if 10 millions only were necessaiy. If
so absurd a law, as the prohibition of the exporta*
tion of the precious metals, could be enforced, and
the consequence of such prohibition were to force
1 1 millions of good pounds, fresh from the mint,
instead of 10, into circulation, the exchange would
be 9 per cent against England; if 12 milUons, l6
per cent ; and if 20 millions, 50 per cent against
England. But no discouragement would be given
to the manufactures of England ; if home commo-
dities sold at a high price in England, so would

CHAP* XVI.]| tAXES OK WAGES* 267

feieign commodities; and whether they were hi^
or low would be of little importance to the foreign
exporter and importer, whilst he would, on the cme
handy be obliged to allow a compensation in the
exchange when his commodities sold at a dear rate,
and would receive the same compensation, when
he was obliged to purchase English commodities at
a high price. The sole disadvantage, then, which
could happen to a country from retaining, by pro-
hibitory laws, a greater quantity of gold and silver-
in circulation than would otherwise remain there,
would be the loss which it would sustain frova em-
ploying a portion of its capital unproductively,
instead of empIo3dng it productively. In the form
of money this capital is productive of no profit ; in
the form of materials, machinery, and food, for
which it might be exchanged, it would be produc-
tive of revenue, and would add to the wealth and
the resources of the State. Thus then, I hope, I
have satisfactorily proved, that a comparatively low
price of the precious metals, in consequence of
taxation, or, in other words, a generally high price
of commodities, would be of no disadvantage to a
State, as a part of the metals would be exported,
which^ by raising their value, would again lower
the prices of commodities. And further, that if
they were not exported, if by prohibitory laws they
could be retained in a country, the e£fect on the
exchange would counterbalance the effect of high
prices. If, then, taxes on necessaries and on wages

268 TAXES ON WAGES. [[CHAP. XVI»

would not raise the prices of all ccmimodities oo
which labour was expended, they cannot be cor^
demned on such grounds ; and moreover, even if
the opinion given by Adam Smithy that they would
have such an ejQEect were well founded, they would
be in no degree injurious on that account. They
would be objectionable for no other reason than
those which might be justly lurged against taxes of
any other description*

/The landlords, as such, would be exempted from
tlie burden of the tax ; but as far as they directly
employed labour in the expenditure of their reve-
nues, by supporting gardeners, menial servants, &€•
they would be subject to its operation.

It is undoubtedly true, that " taxes upon luxu-
ries have no tendency to raise the price of any
other commodities, except that of the commodities
taxed ;" but it is not true, " that taxes upon ne-
cessaries, by raising the wages of labour, necessarilj
tend to raise the price of all manufectures,** It is
true, that " taxes upon luxuiies are finally paid by
the consumers of the commodities taxed, without
any retribution. They fall indifferently upon evay
species of revenue, the wages of labour, the profits
of stock, and the rent of land ;*' but it is not true,
** that taxes upon necessaries, so far as iftey a^ffect
the labouring poor^ are finaHy paid partly by land-
lords in the diminished rent of their lands, and
partly by rich consumers, whether landlords or

CHAP. XVI.] TAXES ON WAGES. 269

Others, in the advanced price of manufacttnred
goods ;'* for, so far as these taxes affect the labouring
poor J they will be almost wholly paid by the dimi-
nished profits of stock, a small part only being paid
by the labourers themselves in the diminished de«
mand for labour, which taxation of every kind has
a tendency to produce.

It is from Dr. Smith's erroneous view of the
eflect of those taxes, that he has been led to the
conclusion, that <* the middling and superior ranks
of people, if they understood their own interest,
ought always to oppose all taxes upon the neces-
saries of life, as well as all direct taxes upon the
wages oS labour. '^ This conclusion follows from
his reasoning, '* that the final payment of both one
and the other falls altogether upon themselves, and
always with a considerable overcharge. They fall
heaviest upon the landlords** who always pay in a
double capacity ; in that of landlords, by the reduc-
tion of their rent, and in that of rich consumers, by
the increase of their expense. The observation of
iSfar Matthew Decker, that certain taxes, are in the
price of certain goods, sometimes repeated and accu-
mulated four or five times, is perfectly just with re-
gard to taxes upon the necessaries of life. In the
price of leather, for example, you must pay, not only
for the tax upon the leather of your own shoes, but for

* So iar from this being ivxe^ they wauld scarcely afiect the
landlords and stockholder.

270 TAXES ON WAGES. [CHAP. XVI.

apart of that upon thoseof the shoemaker and the tan*
ner. You must pay, too, for the tax upon the salt, upon
the soap, and upon the candles, which those work-
men consume while employed in your service, and
for the tax upon the leather, which the salt-maker,
the soap-maker, and the candle-maker consume,
while employed in their service."

Now as Dr. Smith does not contend that the
tanner, the salt-maker, the soap«maker, and the
candle-maker, will either of them be benefited by
the tax on leather, salt, soap, and candles ; and as
it is certain, that Government will receive no more
than the tax imposed, it is impossible to conceive,
that more can be paid by the public upon whomso-
ever the tax may fall. The rich consumers may,
and indeed will, pay for the poor consumer, but
they will pay no more than the whole amount of the
* l\ .\.tax ; and it is not in the nature of things, that

, ^ ^ / • V << the tax should be repeated and accumulated four

; ^ /\{ * • vor five times.*'

' .V

• 0* t

* 'A system of taxation may be defective ; more
may be raised from the people, than what finds its
way into the c<^rs of the State, as a part, in can-
sequence of its effect on prices, may possibly be
received by those who are benefited by the pecu-
liar mode in which taxes are laid. Such taxes are
pernicious, and should not be encouraged ; for it
may be laid down as a principle, that when taxes
operate justly, they conform to the first rf Dr.

CHAP. XVI.3 TAXES ON WAGES, 271

Smith's maxims, and raise from the people as little,
as possible beyond what enters into the public trea-
sury of the State. M. Say says, « others <^r plans
of finance, and propose means for filling the coflfers
of the sovereign, without any charge to his sub-
jects. But unless a plan of finance is of the nature
of a commercial undertaking, it cannot give to
Government more than it takes away, either from
individuals or from Goviemment itself, under some
other form. Something cannot be made out of no-
thing, by the stroke of a wand. In whatever way an
operation may be disguised, whatever forms we may
constrain a value to take, whatever metamorphosis we
may make it undergo, we can only have a value by
creating it, or by taking it from others. The very best
of all plans of finance is to spend little, and the
•best of all taxes is, that which is the least in amount.*'

Dr. Smith uniformly, and I think justiy, con-
tends, that the labouring classes cannot materially
contribute to the burdens of the State. A tax on
necessaries, or on wages, will therefore be shifted
^m the poor to the rich : if then the meaning of
Dr. Smith is, *' that certain taxes are in the price
of certain goods sometimes repeated, and accumu-
lated four or five times,'* for the purpose only of
accomplishing this end, namely, the transference of
the tax from the poor to the rich, they cannot be
liable to censure on that account.

Suppose the just share of the taxes of a rich con-

^2 TAXES ON WAGES. [|CHAP. X\'I»

sumer to be 100/. and that he would pay it directly,
if the tax were laid on income, on wine, or on any
other luxury, he would suffer no injury if by the
taxation of necessaries, he should be only called
upon for the payment of 25/., as far as his own con-
sumption of necessaries, and that of his family was
concerned ; but should be required to repeat this
tax three times, by paying an additional price for
other commodities to remunerate the labourers, or
their employers, for the tax which they have been
called upon to advance^ Even in that case the
; reasoning is inconclusive : for if there be no more
paid than what is required by Government ; of what
importance can it be to the rich consumer, whether
he pay the tax directly, by paying an increased
price for an object of luxury, or indirectly, by pay-
ing an increased price for the necessaries and other
commodities he consumes ? If more be not paid
by the people, than what is received by Govern-
ment, the rich consumer will only pay his equitable
share j if more is paid, Adam Smith should have
stated by whom it is received, but his whole argu-
ment is founded in error, for the prices of commo-
dities would not be raised by such taxes^.

M. Say does not appear to me to have consistent-
ly adhered to the obvious principle, which I have
quoted from his able work ; for in the next page,
speaking of taxation, he says, « When it is pushed
too far, it produces this lamentable eflfect, it de-
prives the contributor of a portion of his riches,

CHAP« XVUj TAXES ON WAGES. S73

without enriching the State. This is what we may
comprehend, if we consider that every man'a
power of consuming, whether productively or iu>t»
is limited by his income. He cannot then be de*
prived of a part of Ins income, without being
obliged proportionally to reduce his consumption.
Hence arises a diminution of demand for those
goods, which he no longer consumes, and particu-
larly for those qfk which the tax is imposed. From
this diminution of demand, there results a diminu-
tion of production, and consequently of taxable
commodities. The contributor then will lose a
portion of his enjoyments ; the producer a portion
of his profits } and the treasury, a portion of its
receipts.**

M. Say instances the tax on salt in France, pre-
vious to the revolution; which, he says, diminished
the production of salt by one half. If, however,
less salt was consumed, less capital was employed
in producing it j and, therefore, though the produ«
cer would obtain less profit on the production of
salt, he would obtain more on the production of
other things* If a tax, however burdensome it
may be, falls on revenue, and not on capital, it does
not diminish demand, it only alters the nature of
it. It enables Government to consume as much of
the produce of the land and labour of the country,
as was before consumed by the individuals who
contribute to the tax, an evil sufficiently great
without overcharging it. If my income is 1000/.

274> TAXES ON WAGES. f CHAP. XVI.

per annum, and I am caUed upon for 100/. per
annum for a tax, I shaU only be able to demand
nine tenths of the quantity of goods, which I be-
fore consumed, but I enable Government to de-
mand the other tenth. If the commodity taxed
be com, it is not necessary that my demand for
com should diminish, as I majr prefer to pay 100/.
per annum more for my com, and to the same
amo\mt abate in my demand for ^i^e, furniture,
or any other luxury*. Less capital will conse-
quently be employed in the wine or upholstery
trade, but more will be employed m manufecturing
those commodities, on which the taxes levied by
Government will be expended.

M. Say says that M. Turgot, by reducing the
market dues on fish fles droits cT entrSe et de hoik
sur la marce) in Paris one half, did not diminish the
amount of their produce, and that consequently,
the consumption of fish must have doubled. He
infers from this, that the profits of the fisherman
and those engaged in the trade, must also have
doubled, and that the income of the country must

* M. Say says, that " that the tax added to the price of a
commodity, raises its price. Every 'increase in the price of a
commodity, necessarily reduces the number of those who are
able to purchase it, or at least the quantity they will consume
of it." This is by no means a necessary consequence. I do not
believe, that if bread were taxed, the consumption of bread
would be diminished, more than if cloth, wine, or soap were
taxed.

CHAP. XVI.3 TAXES ON WAGES. 2^5

have increased^ by the whole amount of these in-
creased profits ; and by giving a stimulus to accu-
mulation^ must have increased the resources of the
State*.

Without calling in question the poUcy, which
dictated this alteration of the tax, I have my
doubts, whether it gave any great stimulus to ac-
cumulation. If the profits of the fisherman and
others engaged in the trade, were doubled in con-
sequence of more fish being consumed, capital and
labour must have been withdrawn from other oc-
cupations to engage them in this particular trade.
But in those occupations capital and labour were
productive of pjofits, which must have been given
up when they were withdrawn. The ability of the
country to accumulate, was only increased by the
difference between the profits obtained in the busi-
ness in which the capital was newly engaged, and
those obtained in that from which it was with-
drawn.

* The following remark of the same author appears to me
equally erroneous : ** When a high duty is laid on cotton, the
production of all those goods of which cotton is the basis is dimi-
nished. If the total value added to cotton in its various manu-
factures, in a particular country, amounted to 100 millions of
francs per annum, and the effect of the tax was, to diminish the
consumption one half, then the tax would deprive that country
every year of 50 millions of francs, in addition to the sum re-
ceived by Government." Vol. ii. p. 314.

T 2

. /

276 TAXES ON WAGES. [CUAP* XVI.

Whether taxes be taken from revenue or capital^
they diminish the taxable commodities of the St^te.
If I cease to expend 100/. on wine, because by
paying a tax of that amount I have enabled Govern-
ment to expend 100/. instead of expending it my-
self, one hundred pounds worth of goods are neces-
sarily withdrawn from the list of taxable commo-
dities. If the revenue of the individuals of a
country be 10 millions, they will have at least 10
millions worth of taxable commodities. If by tax-
ing some, one million be transferred to the disposal
of Government, their revenue will still be nominally
10 millions, but they will remain with only nine
millions worth of taxable commodities. There are
no circumstances under which taxation does not
abridge the enjoyments of those on whom the taxes
ultimately fall, and no means by which those en-
joyments can again be extended, but the acciunu-
lation of new revenue.

Taxation can never be so equally applied, as to
operate in the same proportion on the value of all
commodities, and still to preserve them at the
same relative value. It frequently operates very
differently from the intention of the legislature, by
its indirect effects. We have already seen, that the
efiect of a direct tax on com and raw produce, is,
if money be also produced in the country, to raise
the price of all commodities, in proportion as raw
produce enters into their composition, and thereby
to destroy the natural relation which previously

?«•-

CHAP. XVI. 2 TAXES ON WAGES. 277

existed between them. Another indirect effect is,
that it raises wages, and lowers the rate of profits ;
and we have also seen, in another part of this work,
that the effect of a rise of wages, and a fall of
profits, is to lower the money prices of those com-
modities which are produced in a greater degree
by the employment of fixed capital.

«
■

That a commodity, when taxed, can no longer be
so profitably exported, is so well understood, that
a drawback is frequently allowed on its exportation,
and a duty laid on its importation. If these draw-
backs and duties be accurately laid, not only on
the commodities themselves, but on all which they
may indirectly affect, then, indeed, there will be
no disturbance in the value of the precious metals.
Since we could a^ readily export a commodity after
being taxed as before, and since no peculiar facility
would be given to importation, the precious metals
would not, more than before, enter into the list of
exportable commodities.

Of all commodities, none are perhaps so proper
for taxation, as those which, either by the aid of
nature or art, are produced with peculiar facility.
With respect to foreign countries, such comniodi-
ties may be classed under the head of those which
are not regulated in their price by the quantity of
labour bestowed, but rather by the caprice, the
tastes, and the power of the purchasers. If Eng-
land had more productive tin mines than other

{

t f

278 TAXES ON WAGES. [CHAP. XVI.

countries, or if, from superior machinery or fiid,
she had peculiar facilities in manufacturing cotton
goods, the prices of tin, and of cotton goods,
would still in England be regulated by the compa-
rative quantity of labour and capital required to pro-
duce them, and the competition of our merchants
would make them very little dearer to the foreign
consumer. Our advantage in the production of
these commodities might be so decided, that
probably they could bear a very great additional
price in the foreign market, without very mate-
rially diminishing their consumption. This price
they never could attain, whUst competition was
free at home, by any other means but by a tax on
their exportation. This tax would fall wholly on
foreign consumers, and part of the expenses of the
Government of England would be defrayed, by a
tax on the land and labour of other countries.
The tax on tea, which at present is paid by the
people of England, and goes to aid the expenses
of the Government of England, might, if laid in
China, on the exportation of the tea, be diverted
to the pa3rment of the expenses of the Government
of China.

Taxes on luxuries have some advantage over
taxes on necessaries. They are generally paid
from income, and therefore do not diminish the
.productive capital of the country. If wine were
much raised in price in consequence of taxation, it
is probable tjuit a man would rather forego the en-

CHAP. XVI.] TAXES ON WAGES. 279

jojrments of wine, than make any important en-
croachments on his capital, to be enabled to pur-
chase it. They are so identified with price, that
the contributor is hardly aware that he is paying a
tax. But they have also their disadvantages.
First, they never reach capital, and on some ex-
traordinary occasions it may be expedient that
even capital should contribute towards the public
exigencies ; and secondly, there is no certainty as to
the amount of the tax, for it may not reach even
income. A man intent on saving, will exempt him-
self from a tax on wine, by giving up the use of
it. The income of the country may be undimi-
nished, and yet the State may be unable to raise a
shilling by the tax.

Whatever habit has rendered delightful, will be
relinquished with reluctance, and will continue to
be consumed notwithstanding a very heavy tax ;
but this reluctance has its limits, and experience
every day demonstrates that an increase in the no-
minal amount of taxation, often diminishes the
produce. One man will continue to drink the
same quantity of wine, though the price of every
bottle should be raised three shillings, who would
yet relinquish the use of wine rather than pay four.
Another will be content to pay four, yet refuse to
pay five shillings. The same may be said of other
taxes on luxuries : many would pay a tax of 5/. for
the enjoyment which a horse affords, who would
not pay 10/. or 20/. It is not because they cannot

280 . TAXES ON WAGES. fCHAP. XVI.

pay more, that they give up the use of wine and
of horses, but because they will not pay more.
Every man has some standard in his own mind by
which he estimates the value of his enjoyments, but
that standard is as vaiious as the human character.
A country whose financial situation has become ex-
tremely artificial, by the mischievous policy of ac-
cumulating a large national debt, and a conse-
quently enormous taxation, is particularly exposed
to the inconvenience attendant on this mode of
raising taxes. After visiting with a tax the whole
round of luxuries ; after laying horses, carriages,
wine, servants, and all the other enjoyments of the
rich, under contribution j a minister is induced to
have recourse to more direct taxes, such as in-
come and property taxes, neglecting the golden
maxim of M. Say, " that the very best of aU plans
of finance is to spend little, and the best of all
taxes is that which is the least in amounf

/..:U "-* /••-■ ■ -^ -; ;

t '

■ ' . ■■'■ . -^c Jft-^-

* • J

CHAPTER XVII.

TAXES ON OTHER COMMODITIES
THAN RAW PRODUCE.

On the same principle that a tax on corn would
raise the price of com, a tax on any other commo-
dity would raise the price of that commodity. If
the commodity did not rise by a sum equal to the
tax, it would not give the same profit to the pro-
ducer which he had before, and he would remove
his capital to some other employment.

The taxing of all commodities, whether they be
necessaries or luxiuies, will, while money remains
at an unaltered value, raise their prices by a sum
at least equal to the tax*. A tax on the manufac*

* It^ is obfenred by M* Say, ** that a manufacturer is not ena-
bled to make the consumer pay the whole tax levied on his
commodity, because its increased price will diminish its con«
sumption.** Should this be the case, should the consumption
be dimmished, will not the supply also speedily be diminished ? '
Why should the manufacturer continue in the trade, if his pro*
fits are below the general level? M. Say appears here also to
have forgotten the doctrine which he elsewhere supports, ** that
the cost of production determines the price, belbw which com- *
modlttes cannot fall for any length of time, because production
would'ft^ the&cither suspended or diminished." — Vol. ii. p. 26.

*' The

282 TAXES ON OTHER COMMODITIES [CHAP. XVn.

tured necessaries of the labourer would have the
same efiect on wages as a tax on com, which dif-
fers from' other necessaries only by being the first
and most important on the list ; and it would pro-
duce precisely the same effects on the profits of
stock and foreign trade. But a tax on luxuries
would have no other effect than to raise their price.
It would fall wholly on the consumer, and could
•neither increase wages nor lower profits.

Taxes which are levied on a country for the
purpose of supporting war, or for the ordinary ex-
penses of the State, and which are chiefly devoted
to the support of unproductive labourers, are taken
from the productive industry of the country ; and
every saving which can be made from such ex-
penses will be generally added to the income, if
not to the capital of the contributors. When, for
the expenses of a year's war, twenty millions are
raised by means of a loan, it is the twenty millioos
which are withdrawn from the productive capital
of the nation. The million per annum which is

<* The tax in this case falls then partly on the consumer who
is obliged to give more for the commodity taxed, and partly on
the producer, who, after deducting the tax, will receiFe Icsl
The public treasury will be benefited by what the purchaser
pays in addition, and also by the sacrifice which the producer
is obliged to make of a part of his profits. It is the effort of
gunpowder, which acts at the same time on the bullet vdiich
it projects, and on the gun which it causes to recoil.** — Vol. iu
p. 338.

CHAP. XVII.] THAN EAW PRODUCE. 283

raised by taxes to pay the interest of this loan, is
merely transferred from those who pay it to those
who receive it, from the contributor to the tax, to
the national creditor. The real expense is the
twenty millions, and not the interest which must
be paid for it*. Whether the interest be or be not
paid, the country will neither be richer nor poorer.
Government might at once have required the
twenty millions in the shape of taxes ; in which
case it would not have been necessary to raise an-
nual taxes to the amount of a million. This, how-
ever, would not have changed the nature of the
transaction. An individual instead of being called
upon to pay 100/. per annum, might have been

* ** Melon says, that the debts of a nation are debts due from
the right hand to the lefV> by which the body is not weakened.
It is true that the general wealth is not diminished by the pay-
ment of the interest on arrears of the debt: The dividends area
value which passes from the hand of the contributor to the na-
tional creditor : Whether it be the national creditor or the con-
tributor who accumulates or consumes it, is, I agree, of little im-
portance to the society ; but the principal of the debt — what has
become of that ? It exists no more. The consumption which
has followed the loan has annihilated a capital which will never
yield any further revenue. The society is deprived not of the
amount of interest, since that passes from one hand to the other,
but of the revenue from a destroyed capital. This capital, if it
had been employed productively by him who lent it to the State,
would equally have yielded him an income, but that income
would have been derived from a real production, and would not
have been furnished from the pocket of a fellow citizen." — Say,
vol. ii. p. S57. This is both conceived and expressed in the true
spirit of the science.

S84 TAXES ON OXHER COMMODITIES [CHAP. XVIf.

obliged to pay 2000/. once for all. It might also
have suited his convenience rather to borrow this
2000/., and to pay 100/. per annum for interest to
the lender, than to spare the larger sum from his
own funds. In one case it is^ private transaction
between A and B, in the other Government gua-
rantees to B the payment of interest to be equally
paid by A. If the transaction had been of a pri-
vate nature, no public record would be kept of it,
and it would be a matter of comparative indifier-
ence to the country whether A faithfully perform-
ed his contract to B, or unjustly retained the lOOL
per annum in his own possession. The country
would have a general interest in the faithful per-
formance of a contract, but with respect to the
national wealth, it would have no other interest
than whether A or B would make this lOOL most
productive ; but on this question it would neither
have the right nor the ability to decide. It might
be possible, that if A retained it for his own use,
he might squander it unprofitably, and if it were
paid to B, he might add it to his capital, and em-
ploy it productively. And the converse would
^so be possible ; B might squander it, and A might
employ it productively. With a view to wealth
only, it might be equally or more desirable that A
should or should not pay it ; but the claims of jus-
tice and good faith, a greater utility, are not to be
compelled to yield to those of a less ; and accord-
ingly, if the State were called upon to interfere,
the courts of justice would oblige A to perform his

CHAP* XVII.] THAN RAW PRODUCE. 285

contract. A debt guaranteed by the nation, differs
in no respect from the above transaction. Justice
and good faith demand that the interest of the na-
tional debt should continue to be paid, and that
those who have advanced their capitals for the ge-
neral benefit, should not be required to forego their
equitable claims, on the plea of expediency.

But independently of this consideration, it is by
no means certain, that pglitical utility would gain
any thing by the sacrifice of political integrity ; it
does by no means follow, that the party exonerated
from the payment of the interest of the national
debt would employ it more productively than those
to whom indisputably it is due. By cancelling the
national debt, one man's income might be raised
from 1000/. to 1500/., but another man's would be
lowered from 1500/. to 1000/. These two men's
incomes now amoimt to 2500/., they would amount
to no more then. If it be the object of Govern-
ment to raise taxes, there would be precisely the
same taxable capital and income in one case, as in
the other. It is not, then, by the pa3anent of the
interest on the national debt, that a country is
distressed, nor is it by the exoneration from pay-
ment that it can be relieved. It is only by saving
from income, and retrenching in expenditure, that
the national capital can be increased; and neither
the income would be increased, nor the expendi-
ture diminished by the annihilation of the national
debt. It is by the profuse expenditure of Govern-

286 TAXES ON OTHER COMMODITIES [CHAP. XVII.

menty and of individuals, and by loans, that the
country is impoverished ; every measure, therefore,
which is calculated to promote public and, private
economy, will relieve the public distress; but it is
error and delusion to suppose, that a real national
difficulty can be removed, by shifting it from the
shoulders of one class of the community, who justly
ought to bear it, to the shoulders of another class,
who, upon every principle of equity, ought to bear
no more than their share.

From what I have said, it must not be inferred
that I consider the system of borrowing as the best
calculated to defray tlie extraordinary expenses of
the State. It is a system which tends to make us
less thrifty — ^to blind us to our real situation. If
the expenses of a war be 40 millions per annum,
and the share which a man would have to contri-
bute towards that annual expense were lOO/l, he
would endeavour, on being at once called upon for
his portion, to save speedUy the 100/. from his in-
come. By the system of loans, he is called upon
to pay only the interest of this 100/., or 5L per
annum, and considers that he does enough hj
saving this 51. from his expenditure, and then
deludes himself with the belief, that he is as rid
as before. The whole nation, by reasoning and
acting in this manner, save only the interest of 40
millions, or two mUhons ; and thus, not only lo0e
all the interest or profit which 40 millions of capi-
tal, employed productively, would afibrd, but also

CHAP. XVir.] THAN RAW PRODUCE. 287

38 millions, the difference between their savings
and expenditure. If, as I before observed, each
man had to make his own loan, and contribute his
full proportion to the exigencies of the State, as
soon as the war ceased, taxation would cease, and
we should immediately fall into a natural state of
prices. Out of his private funds, A might have to
pay to B interest for the money he borrowed of
him during the war, to enable him to pay his
quota of the expense ; but with this the nation
would have no concern.

A country which has accumulated a large debt,
is placed in a most artificial situation ; and although
the amount of taxes, and the increased price of
labour, may not, and I believe does not, place it
under any other disadvantage with respect to
foreign countries, except the unavoidable one of
paying those taxes, yet it becomes the interest of
every contributor to withdraw his shoulder from
the burthen, and to shifl this payment from himself
to another; and the temptation to remove himself
and his capital to another country, where he will
be exempted from such burthens, becomes at last
irresistible, and overcomes the natural reluctance
which every man feels to quit the place of his birth,
and the scene of his early associations. A country
which has invdived itself in the difficulties attend-
ing this artificial system, would act wisely by ran-
soming itself from them, at the sacrifice of any
portion of its .property which might be necessary

288 TAXES ON OTHER COMMODITIES [CH^P. XVII.

to redeem its debt That which is wise in an in-
dividual, is wise also in a nation. A man who has
10,000/., paying him an income of 500/., out of
which he has to pay 100/. per annum towards the
interest of the debt, is really worth only 8000/^
and would be equaUy rich, whether he continued
to pay 100/. per annum, or at once, and for only
once, sacrificed 2000/. But where, it is asked,
would be the purchaser of the property which he
must sell to obtain this 2000/. ? the answer is plain:
the national creditor, who is to receive this 2000/.,
will want an investment for his money, and will be
disposed either to lend it to the landholder, or
manufacturer, . or to purchase from them a part of
tlie property of which they have to dispose. To
such a pajrment the stockholders themselves would
largely contribute. This scheme has been often
recommended, but we have, I fear, neither wisdom
enough, nor virtue enough, to adopt it. . It must,
however, be admitted, that during peace, our un-
ceasing efforts should be directed towards paying
off that part of the debt which has been contracted
during war; and that no temptation of relief, no
desire of escape from present, and I hope tempo-
rary distresses, should induce us to relax in our
attention to that great object.

No sinking fund can be efficient for the purpose
of diminishing the debt, if it be not derived from
the excess of the public revenue over the public
expenditure. It is to be regretted, that the sink-

CHAP. XYII.] THAN RAW PRODUCE. S89

ing fund in this country is only such in name; for
there is no excess of revenue above expenditure*
It ought, by economy, to be made what it is pro-
fessed to be, a really efficient fund for the payment
of the debt If, on the breaking out of any future
war, we shall not have very considerably reduced
our debt, one of two things must happen, either
the whole expenses of that war must be defrayed
by taxes raised from year to year, or we must, at
the end of that war, if not before, submit to a na-
tional bankruptcy; not that we shall be unable to
bear any large additions to the debt; it would be
difficult to set limits to the powers of a great nation;
but assuredly there are limits to the price, which
in the form of perpetual taxation^ individuals will
submit to pay for the privilege merely of living in
their native country •.

When a commodity is at a monopoly price, it

* " Credit, in general, is good, as it allows capitals to leava
those hands where they are not usefully employed, to pass into
those where they will be made productive: it diverts a capital
from an employment useful only to the capitalist, such as an in-
vestment in the public funds, to make it productive in the hands
of industry. It facilitates the employments of all capitals,
and leaves none unemployed.*'— Economic Politique, p. 463*
2 Vol. 4th Edition.— 'This must bean oversight of M. Say. The
capital of the stockholder can never be made productive — it is,
in fact, no capital. If he were to sell his stock, and employ the
capital he obtained for it, productively, he could only do bo by
detaching the capital of the buyer of hi^ stock fW>xa a productive
amployment.

290 TAXES ON OTHER COMMODITIES [CHAP. XVII.

is at the very highest price at which the con-
sumers are willing to purchase it. Commodities
are only at a monopoly price, when by no possible
device their quantity can be augmented; and
when therefore, the competition is wholly on one
side — ^amongst the buyers. The monopoly price
of one period may be much lower or higher than
the monopoly price of another, because the com-
petition amongst the purchasers must depend
on their wealth, and their tastes and caprices.
Those peculiar wines, which are produced in
very limited quantity, and those works of art,
which from their excellence or rarity, have ac-
quired a fanciful value, will be exchanged for a
very different quantity of the produce of or-
dinary labour, according as the society is rich
or poor, as it possesses an abundance or scarcity
of such produce, or as it may be in a rude or
polished state. The exchangeable value there-
fore of a commodity which is at a monopoly
price, is no where regulated by the cost of pro-
duction.

' Raw produce is not at a monopoly price, be-
cause the market price of barley and wheat is as
much regulated by their cost of production, as
the market price of cloth and linen. The only
difierence is this, that one portion oT the capital
employed in agriculture regulates the price of
corn, namely, that portion which pays no rent j
whereas, in the production of manufactured com-

CHAP. XVII. J THAiJ EAW PRODUCE. QQl

modities, every portion of capital is employed
with the same results; and as no portion pays
rent, every portion is equally a regulator of price :
com, and other raw produce, can be augmented,
too, in quantity, by the employment of more
capital on the land, and therefore they are not at
a monopoly price. There is competition among
the sellers, as well as amongst the buyers. This
is not .the case in the production of those rare
wines, and those valuable specimens of art, of
which we have been speaking; their quantity
cannot be increased, and their price is limited
only by the extent of the power and will of the
purchasers. The rent of these vineyards may be
raised beyond -any moderately assignable limits,
because no other land being able to produce such
wines, none can be brought into competition with
them.

The com and raw produce of a country may,
indeed, for a time sell at a monopoly price ; but
they can do so permanently only when no more^
capital can be profitably employed on the lands,
and when, therefore, their produce cannot be in-
creased. At such time, every portion of land
in cultivation, and every portion of capital em-
ployed on the land will yield a rent, differing,
indeed, in proportion to the difference in the re-
turn. At such a time too, any tax which may
be imposed on the farmer, will fall on rent, and
not on the consumer. He cannot raise the price

u 2

■•■.'. /

892 TAXES ON OTHEB COMMODITIES [CHAP. XVII.

of his com, because, by the supposition, it is
already at the highest price at which the pur-
chasers will or can buy it. He will not be satis-
fied with a lower rate of profits, than that ob-
tained by other capitalists, and, therefore, his only
alternative wUl be to obtain a reduction of rent, or
to quit his employment.

Mr. Buchanan considers com and raw produce
as at a monoply price, because they 3deld a
rent: all commodities which yield a rent, he
supposes must be at a monopoly price; and
thence he infers, that all taxes on raw produce
would fall on the landlord, and not on the con-
sumer. *< The price of com," he says, « which
always affi>rds a rent, being in no respect in-
fluenced by the expenses of its production, those
expenses must be paid out of the rent ; and when
they rise or fall, therefore, the consequence is not
a higher or lower price, but a higher or a lower
rent. In this view, all taxes on farm servants,
horses, or the implements of agriculture, are in
reality land-taxes; the burden falling on the
farmer during the currency of his lease, and on
the landlord, when the lease comes to be renewed.
In like manner all those improved implements of
husbandry which save expense to the farmer, such
as machines for threshing and reaping, whatever
gives him easier access to the maxket,t(uch as good
roads, canals and bridges, thou^ they lessen the
original cost of corn, do not lessen its market

CHAP. XVII.] THAN RAW PRODUCE^ , «93

price. Whatever is saved by those improvements,
therefore, belongs to the landlord as part of his
rent'*

It is evident that if we yield to Mr. Buchanan
the basis on which his argument is built, namely,
that the price of com always yields a rent, all
the consequences which he contends for would
follow of course. Taxes on the fanner would
then &I1 not on the consumer but on rent; and
all improvements in husbandry would increase
rent: but I hope I have made it sufficiently
dear, that until a country b cultivated in every
part, and up to the highest degree, there is always
a portion of capital employed on the land which
yields no' rent, and that it is this portion of capital,
the result of which, as in manufactures, is divided
between profits and wages that regulates the price
of com. The price of com, then, which does not
afford a rent, being influenced by the expenses of
its production, those expenses cannot be paid out
of rent. The consequence therefore of those ex-
penses increasing, is a higher price, and not a
lower rent*.

* « Manufiu^turing industry increases its produce in proper-*
tion to the demand, and the price falls ; hu the produce qf
Umd cannot he so increased; and a high price is still neces-
aarj to prevent the consumption from exceeding the supply."
Buchanan, vol. iv. p. 40. Is it possible that Mr. Buchanan
can seriously assert, that the produce of the l|ind cannot be
increased, if the demand increases? / < ^ -

- /

894 TAXES ON OTHER COMMODITIES [CHAP. XVII.

It is remarkable that both Adam Smith and
Mr. Buchanan, who entirely agree that taxes on
raw produce, a land-tax, and tithes, all fall on the
rent of land, and not on the consumers of raw
produce, should nevertheless admit that taxes on
malt would fall on the consumer of beer, and
not on the rent of the landlord. Adam Smith's
argument is so able a statement of the view which
I take of the subject of the tax on malt, and every
other tax on raw produce, that I cannot refrain
from ofiering it to the attention of the reader.

^ Tlie rent and profits of barley land must
always be nearly equal to those of other equally
fertile, and equally well cultivated land. If
they were less, some part of the barley land
would soon be turned to some other purpose;
and if they were greater, more land would sooa
be turned to the raising of barley. When the
ordinary price of any particular produce of land
is at what may be called a monopoly price, a
tax upon it necessarily reduces the rent and
profit* of the land which grows it. A tax upon
the produce of those precious vineyards, of
which the wine falls so much short of the ef-
fectual demand, that its price is always above

* I wbh the word '* Profit*' had been omitted. Dr. Smttb
must suppose the profits of the tenants of these precious Tine-
yards to be above the general rate of profits. If tliey were
not, they would not pay the tax^ unless tliey could shift it either
to the landlord or consumer.

CHAP. XVII.3 THAN RAW PRODUCE. 995

.the natural proportion to that of other equally
fertile, and equally well cultivated land, would
necessarily reduce the rent and profit * of those
vineyards. The price of the wines being already
the highest that could be got for the quantity com-
monly sent to market, it could not be raised higher
without diminishing that quantity ; and the quan4
tity ccmld not be diminished without still greater
loss, because the lands could not be turned'
to- any other equally valuable produce. The whole
weight of the tax, therefore, would fall upon, the
rent and profit • ; properly upon the rent of the
vineyard." " But the ordinary price of barley has
never been a monopoly price ; and the rent and
profit of barley land have never been above their
natural proportion to those of other equally fertile
and equally well cultivated land. The different
taxes which have been imposed upon malt, beer,
and ale, have never Umered the price of barley ;
have never reduced the rent and profit • of barley
land. The price of malt to the brewer, has ccm-
stantly risen in proportion to the taxes imposed
upon it ; and those taxes, together with the difier^
ent duties upon beer and ale, have constantly either
raised the price, or, what comes to the same
thing, reduced the quality of those commodities to
the consumer. The final payment of those taxes
has fallen constantly upon the consumer, and not
upon the producer." On this passage Mr. Bu«
chanan remarks, " A duty on malt never could

* See note, p. 294r.

.• • I

f 96 TAXBS OK OTHEH caMM QDITIES [CHA^. XtH

reduce the price of barley, because, unless as much .
could be nOide of barley by malting it as by selling
it unmaked, the quantity required would not be
brought to market* It is clear, therefore, that the
price of mah must rise in proportion to the tax
imposed on it, as the demand could not otherwise
be supplied. The price of bariey, however, is jiist
as much a monopoly price as that of sugar ; they
both yield a rent, and the market jwice of both
has equally lost all connexion with the original
cost.'*

It appears then to be the opinion of Mr. Bu-
chanan, that a tax on malt would raise the price of
malt, but that a tax on the barley from which malt
is made, would not raise the price of barley ; and,
therefore, if malt is taxed, the tax will be paid by
the consumer ; if barley is taxed, it will be paid by
the landlord, as he wiU receive a diminished rent
According to Mr. Buchanan then, barley is at a
monopoly price, at the highest price which the pur-
chasers are willing to give for it } but malt made of
' barley is not at a monoply price, and consequently
it can be raised in proportion to the taxes that may
be imposed upon it. This opinion of Mr. Buchanan
of the effects of a tax on malt appears to me to be
in direct contradictioh to the opinion he has ^en
of a similar tax, a tax on bread. *^ A tax on bread
will be ultimately paid, not by a rise of price, but
by a reduction of rent*.** If a tax on malt would

♦ Vol. iii. p. 355.

CHAP. XVII.] THAN RAW PRODUCE* ^97

raise the price of beer, a tax on bread must raise <. //'
the price of bread. ^^.^^ -^O /*/.,/'< y/< >*' <•

The following argument of M. Say is founded
on the same views as Mr. Buchanan's : <* The
quantity of wine or com which a piece of land will
produce, wiU remain nearly the same, whatever
may be the tax with which it is chaiged. The tax
may take away a half, or even three-fourths of its
net produce, or of its rent if you please, yet the
land would nevertheless be cultivated for the half
or the quarter not absorbed by the tax. The rent,
that is to say the landlord's share, would merely
be somewhat lower. The reason of this will be
perceived, if we consider, that in the case supposed,
the quantity of produce obtained from the land,
and sent to market, will remain nevertheless the
same. On the other hand the motives on which
the demand for the produce is founded, continue
also the same.

^^ Now, if the quantity of produce supplied, and
the quantity demanded, necessarily continue the
same, notwithstanding the establishment or the in-
crease of the tax, the price of that produce will not
vary ; aiid if the price do not vary, thje consumer
will not pay the smallest portion of this tax^

^< Will it be said that the farmer, he who fur-
nishes labour and capital, will, jointly with the
landlord^ bear the burden of this tax ? certainly not ;

^8 TAXES ON OTHER COMMODITIES [CMAP. XVU.

because the circumstance of the tax has not di-
minished the number of farms to be let, nor in-
creased the number of farmers. Since in this
instance also the supply and demand remain the
same, the rent of farms must also remain the same.
The example of the manufiicturer of salt, who can
only make the consumers pay a portion of the tax,
and that of the landlord who cannot reimburse him-
self in the smallest degree, prove the error of those
who maintain, in opposition to the economists, .that
all taxes fall ultimately on the consumer." — Vol. iL
p. 338.

If the tax *^ took away half, or even three*fouTtbs
of the net produce of the land," and the price of
produce did not rise, how could those farmers ob-
tain the usual profits of stock who paid very mode-
rate rents, havingthat quality of land which required
a much larger proportion of labour to cbtain a
given result, than land of a more fertile quality ?
If the whole rent were remitted, they would still
obtain lower profits than those in other trades, and
would therefore not continue to cultivate their land,
unless thejr could raise the price of its produce. If
the tax fell on the farmers, there would be fewer
farmers disposed to hire farms ; if it fell on the
landlord, many farms would not be let at all, for
they would afford no rent. But from what fund
would those pay the tax who produce com without
paying any rent ? It is quite clear that the tax
must fall on the consumer. How would such land,

CHAP. XVII.] THAN RAW PRODUCE. 299

as M. Say describes in the following passage, pay
a tax of one-half or three-fourths of its produce ?

'*v

^ -

" We see in Scotland poor lands thus cultivated ^ ^'
by the proprietor, and which could be cultivated
by no other person. Thus too, we see in the in-i
terior provinces of the United States vast and fer-
tile lands, the revenue of which, alone, would not
be sufficient for the maintenance of the proprietor.
These lands are cultivated nevertheless, but it must
be by the proprietor himself, or, in other words, he
must add to the rent, which is little or nothing, the
profits of his capital and industry, to enable him
to live in competence. It is well known that land^
though cultivated, yields no revenue to the land-
lord when no farmer will be willing to pay a rent
for it : which is a proof that such land will give
only the profits of the capital, and of the industry
necessary for its cultivation.*' — Say^ Vol. ii. p. 127-

CHAPTER XVIIL

POOR RATES.

We have seen that taxes on raw produce, and on
the profits of the farmer, will fall on the consumer
of raw produce ; since unless he had the power of
remunerating himself by an increase of price, the
tax would reduce his profits below the general level
of profits, and would urge him to remove his cajH-
tal to some other trade. We have seen too^ that
he could not, by deducting it from hia rent, trans-
fer the tax to his landlord; because that farmer
who paid no rent, would, equally with the cultiva-
tor of better land, be subject to the tax, whether it
were laid on raw produce, or on the profits of the
farmer. I have also attempted to shew, that if a
tax were general, and affected equally all profits,
whether manufacturing or agricultural, it would
not operate either on the price of goods or raw
produce, but would be immediately, as well as
ultimately, paid by the producers. A tax on rent,
it has been observed, would fall on the landlord
only, and could not by any means be made to de-
volve on the tenant.

The poor rate is a tax which partakes of the
nature of all these taxes, and under different cir-

CHAP. XVm«] POOR RATES. 901

cumstaiices falls on the consumer of raw produce
and goods, on the profits of stock, and on the rent
of land. It is a tax which falls with peculiar weight
on the profits of the farmer, and therefore may be
considered as affecting the price of raw produce.
According to the degree in which it bears on ma*
nu&cturing and agricultural profits equally, it will
be a ^general tax on the profits of stock, and will
occasi<m no alteration in the price of raw produce
and manufactures. In proportion to the fiirmer's
inability to remunerate himself, by raising the price
of raw produce, for that portion of the tax which
peculiarly afiects him, it will be a tax on rent, and
will be paid by the landlord. To know, then, the
operation of the poor rate at any particular time,
we must ascertain whether at that time it aflfects in
an equal or unequal degree the profits of the farmer
and manufacturer ; and also whether the circum-'
stances be such as to afford to the farmer the power
of raising the price of raw produce.

The poor rates are professed to be levied on th^
fiumer in proportion to his rent ; and accordingly,
the fanner who paid a very small rent, or no rent
at all, should pay little or no tax. If this were
true, poor rates, as far as they are paid by the agri-
cultural class, would entirely fall on the landlord^
and could not be shifM to the consumer of raw
produce. But I believe that it is not true ; the
poor rate is not levied according to the rent which
a farmer actually pays to his landlord ; it is pro-

-V

SOS POOR RATE8. [CUAP. XVIIl.

portioned to the annual value of his land, whether
that annual value be given to it by the capital of
the landlord or of the tenant.

If two fermers rented land of two different quali-
ties in the same parish, the one paying a- rent of
lOOL per annum for 50 acres of the most fertile
land, and the other the same sum of lOOL for 1000
acres of the least fertile land, they would pay the
same amount of poor rates, if neither of them
attempted to improve the land ; but if the &nner
of the poor land, presuming on a very long lease,
should be induced, at a great expense, to improve
the productive powers of his land, by manuring,
draining, fencing, &c., he would contribute to the
poor rates, not in proportion to the actual rent paid
to the landlord, but to the actual annual value of
the land. The rate might equal or exceed the r^t;
but whether it did or not, no part of this rate would
be paid by the landlord. It would have been pre-
viously calculated upon by the tenant ; and if the
price of produce were not sufficient to compensate
him for all his expenses, together with this addi-
tional charge for poor rates, his improvements
would not have been undertaken. It is evident,
then, that the tax in this case is paid by the coni>
sumer; for if there had been no rate, the same im-
provements would have been iindertaken, and the
usual and general rate of profits would have been
obtained on the stock employed, with a lower priiae
of com.

CHAP. XVIII.] POOR RATES. SOS

Nor would it make the slightest difference in
this question, if the landlord had made these im-
provements himself, and had in consequence raised
his rent from 100/. to 500^ ; the rate would be
equally charged to the consumer ; for whether the
landlord should expend a large sum of money on
his land, would depend on the rent, or what is
called rent, which he would receive as a remunera-
tion for it ; and this again would depend on the
price of corn, or other raw produce, being suffi-
ciently high not only to cover this additional rent,
but also the rate to which the land would be subr
ject. If at the same time all manufacturing capital
contributed to the poor rates, in the same propor-
tion as the capital expended by the farmer or land-
lord in improving the land, then it would no longer
be a partial tax on the profits of the farmer's or
landlord's capital, but a tax on the capital of all
producers ; and, therefore, it could no longer be
shifted either on the consumer of raw produce or
on the landlord. The farmer's profits would feel
the effect of the rate no more than those of the
manufacturer ; and the former could not, any more
than the latter, plead it as a reason for an advance
hi the p^ce of his commodity. It is not the abso-
lute, but the relative fall of profits, which prevents
capital from being employed in any particular
trade : it is the difference of profit which sends
capital from one employment to another.

It must be acknowledged, however, that in the

S04 POOR RATES. f CHAP* XTHI.

actual state of the poor rates, a much larger amount
ftUs ou the fanner than on the manufacturer, in
proportion to their respective profits ; the fimner
being rated according to the actual productiom
which he obtains, the manufacturer only according
to the value of the buildings in which he works,
without any regard to the value of the machinery,
labour, or stock which he may employ. From this
circumstance it follows, that the farmer will be
enabled to raise the price of his produce by this
whole difierence. For since the tax fall's unequally,
and peculiarly on his profits, he would have less
motive to devote his capital to the Und, than to
^nploy it in some other trade, were not the price
of raw produce raised. If, on the contrary, the
rate had fallen with greater weight on the manu-
facturer than on the farmer, he would have been
enabled to raise the price of his goods by the amoont
of the difference, for the same reason tliat the fanner
under similar circumstances could raise the price of
raw prpduce. In a society, therefore, which is ex-
tending its agriculture, when poor rates fall wA
peculiar weight on the land, they will be paid partly
by the employers of capital in a diminution of the
profits of stock, and partly by the consumer of raw
produce in its increased price. In such a state of
things, the tax may, under some circumstances, be
even advantageous rather than injurious to land*
lords ; for if the tax paid by the cultivator of the
worst land, be higher in proportion to the quantity
of produce obtained, than that paid by the farmers

CHAP. XVII I.J POOR RATES. S05

of the more fertile lands, the rise in the price of
com, which will extend to all com, will more than
cmnpetisate the latter for the tax. This advantage
will remain with them during the continuance of
their leases, but it will afterwards be trani^erred
to their landlords. This, then, would be the eflect
of poor rates in an advancing society ; but in a
stationary, or in a retrograde country, so far as
capital could not be withdrawn from the land, if a
further rate were levied for the support of the poor,
that part of it which fell on agriculture would be
paid, during the current leases, by the farmers ;
but, at the expiration <^those leases, it would almost
wholly fall on the landlords. The fanner, who,
during his former lease^ had expended his capital
in improving his land, if it were still in his own
hands would be rated for this new tax acccording
to the new value which the land had acquired by
its improvement,, and this amount he would be ob-
liged to pay during his lease, although his pro-
fits might thereby be reduced below the general
rate of profits ; for the capital which he has^
expended may be so incorporated with the land,
that it cannot be removed from it. If, indeed, he,
or his landlord, (should it have been expended by
him) were able to remove this capital, and thereby
reduce the annual value of the land, the rate would
proporticmably fidl, and as the produce would at
the same time be diminished, its price would rise ;
he would be compensated for the tax, by charging
it to the consumer, and no part would fall on rent }

f ,*

906 FeOR RifTES; [CHAP. tWlil.

but this is impossible, at least with respect to some
proportion of the cs^ital, and consequently inthtft
proportion the tax will be paid by the fanners
during- their leases, iand by landlords at their er-
piration. ' This additional tax, if it fell with pecu-
liar severity on manufacturers, which it does not,
would, under such circumstances, be added to the
price of their goods ; for there can be no reason
why their profits should be reduced below the ge-
neral rate of profits, when their capitals might be
easily removed to agriculture*.

* In a former part of this work, I have noticed the difference
between rent, properly so called, and the remuneration ptid
to the landlord under that name, for the advantages which the
expenditure of his capital has procured to his tenant ; but I
did not perhaps sufficiently distinguish the difference which
would arise from the different modes in. which this capital might
be applied. Asa part of this capital, when once expended in
the improvement of a farm, is inseparably amalgamated with
the land, and tends to increase its productive powers, the re-
muneration paid to the landlord for its use is strictly of the na.-
ture of rent, and is subject to all the laws of l%ht. Whether
the improvement be made at the expense of the landlord or the

/ , ' tenant, it will not be undertaken in the first instance, unless

♦

there is a strong probability that the return will at least be
e^ual to the profit that can be made by the disposition of any
other equal capital ; but when once made, the return obtained
will ever after be wholly of the nature of rent, and will be sub-
ject to all the variations of rent. Some of these expenaes, how*
ever, only give advantages to the land for a limited period, and
do not add permanently to its productive powers : being be-
stowed on buildings, and other perishable improvements, they
require to be constantly renewed, and therefore do not obtain'
for the landlord apy permanent addition to bis reai rent. .

';> . t #'

CHAPTER XIX.

ON SUDDEN CHANGES IN THE
CHANNELS OF TRADE.

A GREAT manufacturing country is peculiarly ex*
posed to temporary reverses and contingencies,
produced by the removal of capital from one em-
ployment to another. The demands for the pro-
• duce of agriculture are uniform, they are not un-
der the influence of fashion, prejudice, or caprice.
To sustain life, food is necessary, and the demand
for food must continue in all ages, and in all coun-
tries. It is difiFerent with manufactures ; the de-
mand for Bfiy particular manufactured commodity,
is subject not only to th^ wants, but to the tastes
and caprice of the piu-chasers. A new tax too
may destroy the comparative advantage which a
couBtiy before possessed in the manufacture of a
particular commodity j or the effects of war may
so raise the freight and insurance on its convey-
ance, that it can no longer enter into competition
with the home manufacture of the country to which
it was before exported. In all such cases, consider-
able distress, and no doubt some loss, will be ex-
perienced by those who are engaged in the manu-
facture of such commodities ; and it will b^ felt

X 2 >.

SOS ON SUDDEN CHANGES [CHAF. XIX.

not only at the time of the change, but throu^
the whole interval during which they are removing
their capitals, and the labour which they can com-
mand, from one emplo3rment to another.

Nor will distress be experienced in that country
alone where such difficulties originate, but in the
countries to which its commodities were before ex-
ported. No country can long import, unless it also
exports, or can long export unless it also imports.
If, then, any circumstance should occur, which
should permanently prevent a country from imports
ing the usual amount of foreign commodities, it
will necessarily diminish the manufactiu^ of some
of those commodities which were usually exported;
and although the total value of the productions of
the country will probably be but Uttle altered,
since the same capital will be employed, jtt they
will not be equally abundant and cheap ; and con-
siderable distress will be experienced through the
change of employments. If by the employment of
10,000/L in the manufacture of cotton goods for ex-
portation, we imported annually SOOO pair of silk
stockings of the value of SOOOi, and by the inter-
ruption of foreign trade we should be obliged to
withdraw this capital fixm the manufacture of coU
ton, and employ it ourselves in the manufacture of
stockings, we should still obtain stockings of the
value of SOOO/. provided no part of the capital were
destroyed; but instead of having SOOO pair, we
might only have S500, In the removal of the ca-

CHAP. XIX. j IN THE CHANNELS OF tRADE. 309

pital from the cotton to the stocking trade, much
distress might be experienced, but it would not
considerably impair the value of the national pro-
perty, although it might lessen the quantity of our
annual productions*.

The commencement of war after a long peace,
or of peace after a long war, generally produces
considerable distress in trade. It changes in a
great degree the nature of the employments to
which the respective capitals of countries were be-
fore devoted; and during the interval while they
are settling in the situations which new circuih-
stances have made the most beneficial, much fixed
capital is unemployed, perhaps wholly lost, and la-
bourers are without ftdl employment. The dura-
tion of this distress will be longer or shorter
according to the strength of that disinclination^
which most men feel to abandon that employment
of their capital to which they have long been ac-
customed. It is often protracted too by the re-
strictions and prohibitions, to which the absurd
jealousies which prevail between the different States
of the commercial commonwealth give rise.

* ** Commerce enables iu to obtain a commodity in tbe place
where it u to be found, and to convey it to anotherwhere it is to be
consumed ; it therefore gives us the power of increasing the
value of the commodity^ by the whole difference between its
price in the first of these places, and its price in the second/'
M.Sayyp.458, vol.ii. True, but howis this additional valuegiven
to it ? By adding to the cost of production, first, the expenses

810 ' ON SUDDEN CHANGES [CHAP. XIX,

The distresB which proceeds from a revuknon of
trade, is often mistaken for that which accompa-
nies a diminution of the national capital, and a re-
trograde state of society ; and it would perhaps be
difficult to point out any mark»by which they may
be accurately distinguished..

When, however, such distress immediately ac-
companies a change from war to peace, our know-
ledge of the existence of such a cause will make it
reasonable to believe, that the funds for the main-
tenance of labour have rather been diverted from
their usual channel, than materially impaired, and
that after temporary suffering, the nation will again
advance in prosperity. It must be remembered too
that the retrograde condition is always an unnatural
state of society. Man from youth grows to man-
hood, then decays, and dies ; but this is not the
progress of nations. When arrived to a state of
the greatest vigour, their further advance may in-
deed be arrested, but their natural tendency is to

of conveyance ; secondlj, the profit on the advances of capital
made bj'the merchant. The commodity is only mora valuabiei
for the same reasons that every other commodity may become
more valiudde, because more labour is expended on its prodac-
tion and conveyance, before it is purchased by the consumer.
This must not be mentioned as one of the advantages of com-
merce. When the subject is more closely examined, it will be
found that the whole benefits of commerce resolve tliemselvei

into this means iduch it gives us of acquiring, not mora valuabk
objects, hut mora useful ones.

CHAF« UX.] IN Tllfi CHAMmSIrS OF TRADE. Sll

eontinue fi>r ages, to sustain undiminished their
wealth, and their population.

In rich and powerful countries, where large ca-
pitals are invested in machinery, more distress wiM
be eqierienced from a revulsion in trade, than in
poorer countries where there is proportionally a
much smaller amount of fixed, and a much larger
amount df circulating capital, and where conse-
quently more work is done by the labour of men*
It is not so difficult Xo withdraw a circulating as a
fixed capital, from any employment Ia which it may
be engaged. It . is often impossible to divert thf
machinery which may have been erected for one
manufacture, to the purposes of another ; but the
clothing, the food, and the lodging of the labourer
in one employment may be devoted to the support
4£ the labourer in another ; or the same labourer
may receive the same food, clothing and lodging,
whilst his employment is changed* This, bowevei^
is an evil to which a rich nation must submit ; and

it would not be more reasonable to complain, of it,
than it would be in a rich merchant to lament that
his ship was exposed to the dangers of the sea,
whilst his poor neighbour's cottage was safe from
all such hazard.

From contingencies of this land, though in an
inferior degree, even agriculture is not exempted^
War, which in a commercial country, interrupts
the commerce of States, frequently prevents the

exportatiwi of qprn from .oauatries where it ca4 b<

81 S -OK SUDDEN CHANGES £CHAF. XIX.

produced with little co6t» to others not so favour-
ably situated. Under such drcumstances an uo*
usual quantity of capital is drawn to agricukurei
and the country which Ibefore imported becomes
independent of foreign aid. At the termination of
the war, theobstadestoimportationareremoved, and
a competition destructive to the home-grower cms-
msnceSf from which he is unable to withdraw, with-
out the sacrifice of a great part <^ his capital. The
best policy of the State would be, to lay a tax, de-
creasing in amount from time to time, cm the im-
portation of foreign com, for a limited number (tf
years, in order to aflbrd to the home-grower aa
opjportunily to withdraw his oqiital gradually from
the land*. In so doing, the country might not be
inaking the most advantageous distribution of its
capital, but the temporary tax to which it was sub-
jected, would be for the advantage of a particular
dass, the distribution of whose capital was IngUy

* In the lait volume to the sapplement of the EncydofHBdit
Britannica, artide ** Coni Lews and Tiade/' are tiie fMimmg
excellent snggestiona and obsenrations : ** Jf we shall at any fu-
ture period, think of retracing our steps, in order to gire time
to withdraw capital from the cultivation of our poor soils, and to
invest it in more lucrative employments, a gkraduaUy diminishiag
scale of duties may be adopted. The price at which fyttiga
grain should be admitted duty free, may be made to decreaie
from SOi. its present limit, by 4a* or 6$* per quarter amuiaUy, tiH
it reaches 60«. when tlie ports could safely be thrown open, and
the restrictive system be for ever abolished. When this happy
event'shall have taken place, it will be no longer necevary to
force nature. The capital and enterprise of the country will be

turned

CHAP. XIXJ} IN TOM CHJlKHELfl OV TRADE. 318

umAiI in procuring a supply of food when import-
ation was stopped. If such exertions in a period
of emergency were f<^owed by risk of ruin on the
temunation of the dilBcul^» aqntal would diun
such an employment* Beades the usual profits of
stocky fiurmers would expect to be compensated
for the risk which they incurred of a sudden in-
flux of com ; andt therefore, the price to the con-
8unier» at the seasons when he most requireda sup-
ply, would be enhanced, not only by the siq>erior
cost of growing com at lumie, but also by the in-
surance which he would have to pay, in the price,
for the peculiar risk to which this employment of
capital was exposed. Notwithstanding, then, that
it would be more productive of wealth tothe coun-
try, at whatever sacrifkse of capital it might be
done, to aUow the importation of cheap com, it
would, perhaps, be advisable to charge it with a
duty for a few years.

tiamed into those dflpaitmeiitt of indnitry in which oor phjiical
sitiiatioD, natioiud character, or political inatitattoiity fit ut to
exceL The com of Pcdand, and the raw cotton of Carolina,
will be exchanged for the wares of Birmingham, and the mudins
of GhMgow. The genuine commercial spirit, that which per-
manently secnres the prospefitjr of nations, is altogether incon-
aialent with the dark and shallow policy of monopoly. Thena-
tiona of the earth are like provinces of the same kingdom*-a
Iree and nnfettered intercourse is alike productive of general
and of local advantage.'* The whole article is wd worthy of at-
tention ; it is very instructive, is ably written^ and Aews that
the aathor is completdy master of the subject.

In entttnii^ the qyueatiou of rrat* we foua^
tint idtfat every iocKMe in the aupply of com, a«d
vith the ooiuiequeiit fidl of ila jmoe, <2apital woi]14
be withdcswn from the poorer land ; and land cif
a better descdption, which would th«a pay no reoi^
.iMuld bec^Hne the standard by. which the natunl
price of com would be regulated^ At 4/L per
quartei^ land of an inf<mor quality, which aaay be
4eaignated by No. 6, might be cultivated ; at 3^ lOc
No.. 6$ A SL No. it and so on. If com, ia
xonaequence of permaiient abunduice, fell to SZ.
10#., the capital eniployed on No. 6 would ceaae tp
be employed ; for it was only when com waa at 4£
that H could obtain the general profits, eyen. with-
-eut paying rent : it would* therefore, be withdiawn
to manufacjture thc^ commodities with which all

the com grown on No, 6 would be purchased and
imported. In this employment it wooijd neces-
sarily be more productive to its owner» or it .would
not be withdrawn from the other ; for if he could
not obtain more com by purchasing it with a com*
modity which he manufactured, than he got froDk
the land for which he paid no rent, its prlpe could
not be under 4iL ^ 'V'^*

' It has, however, been said^ that capital cattnot
be withdrawn from the knd ; that it takes tfae^fetin
of expenses, which cannot be recovered, sucK as
maouriug^ fencings draining, &c., which are neces-
aarily itaseparable £rom the land* .This is in, aQne
degree true ; * but-that capital \. wfaiph consisks .of

CHAP. XIX/} IK TRB CHAKNBLS ^F TIUJ>E. 91S

eattfe» abeep, hay and comifieka, carts, &<% magr ht '

r /

r/ / , •"■

f :. - "'*

withdrawn ; and it always beoomes a matter of oal^
culation, whether these shall c<mtiniie to be employ-
ed on the land» notwidistanding the low price of ^
com, or whether they shall be sold, and their value ), . u :\> Ul /<•
transferred to another employment. ,^- . ^ V * '* -'

Suppose, however, the fact to be as stated, aiid '
that no part of the capital coidd be withdrawn *;
the fanner would continue to raise com^ and pre#
eiseiy the same quantity too, at whatever price it
might sell ; for it could not be his interest to pro*
duce less, and if he did not so employ his capital,

* Whi^ever capital becomes fixed on the land, must neces-
farfly be the landlord's, and not the tenants, at the expiration
of the lease. Whatever conpensation the landlolrd may receive
for this capital, on re-letting his land, will appear in tha form of
rent ; but no rent will be paid, if, with a given capital, more com
can be obtained from abroad, than cAn be grown on this land at
home. If the circumstances of the society should require com
to be imported, and 1000 quarters can be obtained by the em-
ployvient of a given ci^ital, and if this land, with the employment
of the same capital, will yield 1100 quarters, 100 quarters will
necessarily go to rent ; but if 1200 can be got from abroad, dien ;
this land wiU go out of cultivation, for it will not then yield
even the general rate of profit. Bat this is no disadvantage,
however great the capital may have been, tihal had been eXp
pended on the knd. Such capital is spent with a view to augf-
ment the produce — that, it should be remembere^i is tl^e end ;
of wiiat importance then can it be to the society, whether half its
capital be sunk in value, or even annihilated, if they obbun a
greater aanual quantity of production ? Those who deplore the
loss of capital in this case, are for sacrificing the end to the means.

S16 OM 8m>0£N cRANon [chap. xtx.

he would obtain from it no return whatever. Com
could not be imported* because he would seil it
lower than 8L lOs. rather than not sdl it at all* and
by the suppomtion the importer could not sell it
under that price. Although then the fanners, who
cultivated land of this quality, would undoubted^
be injured by the fall in the exchangeable value
of the ccmimodity which they produced, — how
would the country be affected ? We should have
precisely the same quanti^ of every commodity
produced, but raw produce and com would sdl at
a much cheiq^er price. The capital of a countiy
upnsists of its ccMnmodities, and as these would be
the same as before, reproduction would go on at
the same rate. This low price of com wouldbow-
ever only affi>rd the usual profits of stock to the
land. No. 5, which would then pay no rent, and the
rent of all better lapd would fall : wages would
also fall, and profits would rise.

However low the price of com might faD ; if
capital could not be removed from the land, and
the demand did not increase, no importation would
take place ; for the same quantity as before would
be produced at home. Although there would be
a different division of the produce, and some classes
would be benefited, and others injured, the aggre-
gate of production would be precisely the same,
and the nation collectively would neither be richer
nor poorer.

CHAP. XIX.3 IN TUB CHANNfiLt OF TRADE. 317

But there u this advantage always resultii^ from
a rdatiyely low price of com, —that the division
of the actual production is more likely to increase
the fund for the maintenance of labour, inasmuch
as more will be allotted, under the name of profit,
to the productive class, a less under the name x^vA^t/^J/i / ^ -
to the unproductive class. \. / . <

»'• '• ■/

'%!

-.4//../'^*'

^/»i« ,.\»» /

V. »- •

* • . *\ *

f * •

This is true, even if the capital cannot be with- ^ . . t\ : :<:
drawn from the land, and must be employed there,^ '^^z '/*' /'
or not be employed at all : but if great part of the^ ^
capital can be withdrawn, as it evidently could, it
will be (mly withdrawn, when it will yield more to the.x; '- 7^/ >^' ^ ' '^
owner by being withdrawn than by being suffered
to remain where it was ; it wiU only be withdrawn
then, when it can elsewhere be employed more
productively both for the owner and the pubUc,
He consents to sink that part of his capital which
cannot be separated from the land, because with
that part which he can take away, he can obtain a
greater value, and a greater quantity of raw pro-
duce,.than by not sinking this part of the capitaL
His case is precisely similar to that of a man who
has erected machinery in his manufactory at a
great expense, machinery which is afterwards so
much improved upon by more modem inventi<m8^
that the commodities manufactured by him very
much sink in value. It would be entirely a matter
of calculation with him whether he diould aban*
don the old machinery, and erect the more perfect,
losing aU the value qf the oldf or continue to avail

518 ON dUDDBN CRANO£» fcHAP. XIX.

himself of its comparatively feeble powers. Vfha,
under such circumBtauces^ would exhort him to
fi»*ego the use of the better machinery, because it
would deteriorate or atinihilate the value of the
old ? Yet this is the argument of those who would
wish us to prohibit the importation of com, because
it will deteriorate or annihilate that part of the ca^
pital of the farmer which is for ever sunk in land
They do not see that the end of all commerce is to
increase production, and that by increasing pro-
duction, though you may occasion partial loss, you
increase the general happiness. To be consistent,
they should endeavour to arrest all improvements
in agriculture Btkd manu&ctures, and all inventions
of machinery ; for though tiiese contribute to ge-
neral abundance, and therc^fbre to the general hap-
piness, they never fail, at the moment of their in-
troduction, to deteriorate or annihilate the valoe
of a part of the existing capital of farmers and
manufacturers *•

Agriculture, like all other trades^ and particu-
larly in a commercial country, is subject to a re-
action, which, in an opposite direction, succeeds
the action of a strdiig stimulus. Thus, when war
interrupts l3ie importation of com, its coiisequetrt
high price attracts Capital to the latid^ Srom tlie

• ^ Among the most aible of the publicatioiis, on the impolicj
of retftricting thelm^rtation of Corn, may be classed Major
Torrens* Essay on the Extemal Corn Trade. His arguments
appear to me to be miansweredi and to be unanswerable.

CHAP. XIX.} IN TH£ CHANNELS OF TRADE, 319

large profits which such an employment of It affi>rds ;
this will probably cause more capital to be employ-
ed^ and more raw produce to . be brought to
market than the demands of the country require.
In such case, the price of com will fall from the
effects of a glut, and much agricultural distress
will be produced, till the average supply is brought
to a level with the average demand.

CHAPTER XX.

VALUE AND RICHES, THEIR DISHNC-

TIVE PROPERTIES.

" A MAN is rich or poor/' says Adam Smith, ** ac-
cording to the degree in which he can afford to
enjoy the necessaries, conveniences, and amuse-
ments of human life/'

Value, then, essentially differs from riches, for
value depends not. on abundance, but on the diffi-
culty or facility of production. The labour of a
miUion of men in manufactures, will always produce
the same value, but will not always produce the
same riches. By the invention of machinery, by im-
provements in skill, by a better division of labour,
or by the discovery of new markets, where more
advantageous exchanges may be made, a millicm
of men may produce double, or treble the amount
of riches, o£ ** necessaries, conveni^ices, and
amusements," in one state of society, that th^
could produce in another, but they will not on
that account add any thing to value; for eveiy
thing rises or falls in value, in proportion to the
facility or difficulty of producing it, or« in other
words, in proportion to the quantity of labour em-
ployed on its production. Suppose with a given

CUAP. XX. J VALUE AND RICHES, &€• SSI

capital, the labour of a certain number of men
produced 1000 pair of stockings, and that by uIf
ventions in machinery, the same number of men
can produce 2000 pair, or that they can continue
to produce 1000 pair, and can produce besides 500
hats; then the value of the 2000 pair of stockings,
or of the 1000 pair of stockings, and 500 hats, will
be neither more nor less than that of the 1000 pair
of stockings before the introduction of machinery;
for they will be the produce of the same qu^tity
of labour. But the value of the general mass of
commodities will nevertheless be diminished ; for,
although the value of the increased quantity pro-
duced, in consequence of the improvement, will
be the same exactly as the value would have been
qf the less quantity that would have been produced,
bad no improvement taken place, an effect is abo
produced on the portion of goods still unconsumed^
which were manufactured previously to the improve^
ment ; the value of those goods will be reduced,
inasmuch as they must fail to the level, quantity
for quantity, of the goods produced under all the
advantages of the improvement: and the society
will, npthwithstanding the increased quantity of
commodities, notwithstanding its augmented riches,
and its augmented means of enjoyment, have a less
amount of value. By constantly increasing the
facility of production, we constantly diminish the
value of some of the commodities before produced,
though by the same means we not only add to the
national riches, but also to the power of futiure pro-

322

VALUE AND RICHES, []CHAP. XX.

auction. Many of the errors in poUtical economy
have arisen from errors on this subject, from consi-
dering an increase of riches, and an increase of
value, as meaning the same thing, and from un-
founded notions as to what constituted a standard
measure of value. One man considers money as a
standard of value, and a nation grows richer »
poorer, according to him, in proportion as its com-
modities of all kinds can exchange for more or less
money. Others represent money as a very conve-
nient medium for the purpose of barter, but not as
a proper measure by which to estimate the value
of other things; the real measure of value accord-
ing to them, is com*, and a country is rich or
poor, according as its commodities will exchange
for more or less cornt. There are others again,
who consider a country rich or poor, according to
the quantity of labour that it can purchase. But
why should gold, or com, or labour, be the standard

♦ Adam Smith says, " that the difference between the real and
the nominal price of commodities and labour, is not a matter of
mere speculation, but may sometimes be of considerable use in
practice." I agree with him ; but the real price of labour and
commodities, is no more to be ascertained by their price in
goods, Adam Smith's real measure, than by their price in gold
and silver, his nominal measure. The labourer is only paid a
really high price for his labour, when his wages will purchase
the produce of a great deal of labour*

f In vol. i. p. 108, M. Say infers, that silver is now of the
same value, as in the reign of Louis XIV. <^ because the same
quantity 6f silver will buy the same quantity of com.**

CHAJP* XX. J THEIR DISTINCTIVE PROPERTIES. S23

measure of value, more than coals or iron ? — ^moro'
than cloth^ soap, candles, and the other necessaries
of the labourer ? — ^why, in short, should any com-
modity, or all commodities together, be the standard/
when such a standard is itself subject to fluctua^i
tions in value ? Com, as well as gold, may from
difficulty or facility of production, vary 10, 20, or
30 per cent., relatively to other things ; why should
we always say, that it is those other things whiclt
have varied, and not the com ? That commodity
is alone invariable, which at all times requires the
same sacrifice of toil and labour to produce it* Of
such a commodity we have no knowledge, but we
may hypothetically argue and speak about it, as if
we had; and may improve our knowledge of the
science, by shewing distinctly the absolute inappli-
cability of all the standards which have been hither-
to adopted. But supposing either of these to be a
correct standard of value, still it would not be a
standard of riches, for riches do not depend on
value. A man is rich or poor, according to the
abundance of necessaries and luxuries which he
can command ; and whether the exchangeable value
of these for money, for com, or for labour, be high
or low, they wiU equally contribute to the enjoy-
ment of their possessor. It is through confound-
ing the ideas of value and wealth, or riches that it
has been asserted, that by diminishing the quantity
of commodities, that is to say of the necessaries,
conveniences, and enjoyments of human life, riches
may be increased. If value were the measure of

Y 2

5S4 VALUE AND RICHES, £CHAP. XX.

riches, this could not be denied, because by scarcity
the value of commodities is raised ; but if Adam
Smith be correct, if riches consist in necessaries
and enjoyments, then they cannot be increased by
a diminution of quantity.

It is true, that the man in possession of a scarce
commodity . is richer, if by means of it he can
command more of the necessaries and enjoyments
of human life ; but as the general stock out of
which each man's riches are drawn, is diminished
in quantity, by all that any individual takes from
it, other men's shares must necessarily be reduced
in proportion as this favoured individual is able to
appropriate a greater quantity to himself.

Let water become scarce, says Lord Lauderdale,
and be exclusively possessed by an individual, and
you will increase his riches, because water will then
have value ; and if wealth be the aggregate of in-
dividual riches, you will by the same means also
increase wealth. You undoubtedly will increase
the riches of this individual, but inasmuch as the
farmer must sell a part of his com, the shoemaker
a part of his shoes, and all men give up a porticM^
of their possessions for the sole purpose of supply*
ing themselves with water, which they before had
for nothing, they are poorer by the whole quanti^
of commodities which they are obliged to devote to
this purpose, and the proprietor of water is bene*
fited precisely by the amount of their loss* The

CHAP. XX. J THEIR DIOTmCTIVE PROPERTIES. 325

same quantity of water, and the same ^antity of
commodities, are enjoyed by the whole society, but
they are differently distributed. This is, however^
supposing rather a monopoly of water than a scar-
city of it If it should be scarce, then the riches
of the country and of individuals would be actually
diminished, inasmuch as it would be deprived of a
portion of one of its enjoyments. The farmer
would not only have less com to exchange for the
other commodities which might be necessary or
desirable to him, but he, and every other individual,
would be abridged in the enjoyment of one of the
most essential of their comforts. Not only would
there be a different distribution of riches, but an
actual loss of wealth.

It may be said, then, of two countries possessing
precisely the same quantity of all the necessaries
' and comforts of life, that they are equally rich, but
the value of their respective riches would depend
on the comparative facility or difficulty with which
they were produced. For if an improved piece of
machinery should enable' us to make two pair of
stockings, instead of one, without additional labour,
double the quantity would be given in exchange
for a yard of cloth. If a similar improvement be
made in the manufacture of cloth, stockings and
doth will exchange in the same proportions as be-
£>re, but they will both have fallen in value ; for
ki exchanging them for hats, for gold, or other
commodities in general, twice the former quantity

S«6 VALUE AND mCHES, |^CHAP. U.

must be given. Extend the improvement to the
production of gold, and every other commodiiy;
and they will all regain their finrmer proportionst
There will be double the quantity of commoditLes
annually produced in the country, and therefore
the wealth of the country will be doubled, but this
wealth will not have increased in value-

Although Adam Smith has given the correct de-
scription of riches, which I have more than once
noticed, he afterwards explains them diflferently,
and says, " that a man must be rich or poor accord-
ing to the quantity of labour which he can aflSwd to
purchase/' Now, this description difiEers essentially
from the other, and is certainly incorrect; for,
suppose the mines were to become more productive,
BO that gold and silver fell in value, from the greater
facility of their production ; or that velvets were to
be manufactured with so much less labour than
before, that they fell to half their former value ;
the riches of all those who purchased those com-
modities would be increased ; one man might in-
crease the quantity of his plate^ another might buy
double the quantity of velvet ; but with the posses-
aion of this additional plate and velvet, they coidd
employ no more labour than before ; because, as the
exclmngeable value of velvet and of plate would be
lowered, they must part with proportionally more
of these species of riches to purchase a day's labour.
Riches, then, cannot be estimated by the quantity
of labour which they can purchase.

CHAP. XX.2 THEIR DISTINCTIVE PROPERTIES. 327

From what has been said, it will be seen that the
wealth of a country may be increased in two ways:
it may be increased by employing a greater portion
of revenue in the maintenance of productive la-
bours'—which will not only add to the quantity,
but to the value of the mass of commodities ; or
it may be increased, without employing any addi^
tional quantity of labour^ by making the same
quantity more productive,— which will add to the
abundance, but not to the value of commodities*

In the first case, a country would not only be-
come rich, but the value of ' its riches would
increase. It would become rich by parsimony;
by diminishing its expenditure on objects of luxury
and enjoyment; and employing those savings in
reproduction.

In the second case, there will not necessarily be
either any diminished expenditure on luxuries and
enjoyments, or any increased quantity of produce
tive labour employed, but with the same labour
more would be produced ; wealth would increase^
but not value. Of these two modes of increasing
wealth, the last must be preferred, since it pro*
duces the same efiect without the privation and
diminution of enjoyments, which can never fail to
accompany the first mode. Capital is that part of
the wealth of a country which is employed with ar
view to future production, and may be increased in
the same manner as wealth* An additional capital

328 VALUE AND RICHES, ^ [[CHAP. XX.

will be equally efficacious in the production of
future wealth, whether it be obtained from ini-
provements in skill and machinery, or from using
more revenue reproductively ; for wealth always
depends on the quantity of commodities produced,
without any regard to the facility with which the
instruments employed in production may have been
procured. A certain quantity of clothes and pro-
visions will maintain and employ the. same number
of men, and will therefore procure the same quan-
tity of work to be done, whether they be produced
by the labour of 100 or 200 men ; but they will be
of twice the value if 200 have been employed on
their production.

M. Say, notwithstanding the corrections he has
made in the fourth and last edition of his work,
'< Traite d'Economie Politique," appears to me to
have been singularly unfortunate in his definition
of riches and value. He considers these two terms
^ synonymous, and that a man is rich in propor-
tion as he increases the value of his possessions,
and is enabled to command an abundance of com-
modities. ** The value of incomes is then in-
creased," he observes, " if they can procure, it
does not signify by what means, a greater quan-
tity of products." According to M. Say, if the
difficulty of producing cloth were to double, and
consequently cloth was to exchange for double the
quantity of the commodities for which.it exchanged
before, it would be doubled in vidue, to which I

CHAP. XX.] THEIR DISTINCTIVE PROPERTIES. SS9

give my fullest assent ; but if there were an j pecu-^
liar facility in producing the commodities, and no
increased difficulty in producing cloth, and cloth
should in consequence exchange as before for
double the quantity of commodities, M. Say would
still say that cloth had doubled iD/value> whereas ac-
cording to my view of the subject, he should say, that
cloth retained its former value, and those particular
commodities had fallen to half their former value.
Must not M. Say be inconsistent with himself when
he says, that by facility of production, two sacks *
of corn may be produced by the same means that
one was produced before, and that each sack will
therefore fall to half its former value, and yet main'-
tain that the clothier who exchanges his cloth for
two sacks of com, will obtain double the value h6
before obtained, when he could only get one -sack
in exchange for his cloth. If two sacks be of the
value that one was of before, he evidently obtains
the same value and no more, — ^he gets, indeed,
double the quantity of riches — double the quantity
of utility— double the quantity of what Adam
Smith calls value in use, but not double the quan-
tity of value, and therefore M. Say cannot be right
in considering value, riches, and utility to be syno-
nymous. Indeed, there are many parts of M. Say's
work to which I can confidently refer in support
of the doctrine which I maintain, respecting the
essential difference between value and riches,
although it must be confessed that there aro also
various other passages in which a contrary doctrine

f s

380 VALUS AKD EICIKS» [CHAP.

is maintamed. These passages I cannot reconcilei
and I point them out by putting them in oppo-
sition to each otiier, that M. Say may, if he should
do me the honour to notice these observations in
any future edition of his work, give such exph-
nations of his views as may remove the difficulty,
which many others, as well as myseli^ fed in our
endeavours to expound them.

1 • In the excliange of two pro- 5. The value of incomes is then
ducts, we only in fact ex- increased, if thej can pro-
change the productive ser- cure (it does not signify
vices whidi have served bj what means,) a greatsr
to create them p* 504<. quantity of products.

S, There is no real dearness 6. Price is the measure of the
but that which arises from value of things, and their
the cost of production. value is the measure of
A thing really dear, is that their utDity* 8 Vol....p.4«
which costs, much in pro-
ducing • 497*

8. The value of all the pro- ?• Exchanges made freely,
ductive services that must shew at the time. In the
be consumed to create a place, and in the state of
product, constitute the society in which we are,
cost of production of that the value which men alp
product 505. tach to the things ex-
changed 466.

4. It is utility which deter- 8. To produce, is to create

mines the demand for a value, by giving or increat-

commodity, but it is the ing the utili^ of a diii^

cost of its production and thereby establishing a

which limits the extent of demand for it, which is the

its demand. When its uti- first cause of its valae.

lity does not elevate its Vol. 2. .....487*

value to the level of the 9. Utility being created, coa-

otst of production, tba utitates a product. Ike

;

CHAP.XJlO THEIE DISTWCTIVK PROPERTIES. S81

if not worth what it
t cost; it is A proof that the
1 productive services might
'be employed to create a
eonBMdity of a superior
value. The possessors of
productive funds, that is
to say, those who have the
disposal of labour, of ca-
pital or land, are perpetu«
9A\y occupied in compa-
ring the cost of produO"
tion with the value of the
things produced, or which
comes to the same thing,
in comparing the value of
diierent coramodities with
each other; because the
cost of production is no*
thing else but the value
of productive services, con-
sumed in forming a pro-
dttctibo ; and the value of
a productive service is no*
thing else than the value
of the commodity, which
is the result. The value
of a commodity, the va-
lue of a productive servicOt
die value of the cost of
production are all, then, si-
milar values when every
thing is left to its natural
bourse.

exchangeable value which
results, is only the measure
of this utility, the measure
of the production which
has taken place.....p. 490.

10. The utili^ which people of
a particular country find in
a product, can no other*
wise be appreciated than
by the price which they
give for it.... 502.

11. This price, is the measure
of the utility, which it has
in the judgment of men ;
of the satisfaction which
they derive from con*
suming it, because they
would not prefer consum-
ing this utility, if for the
price which it cost they
could acquire a utility
which would give them
more satisfieu^tion 506.

12. The quantity of all other
commodities which a per-
son can immediately pbtain
in exchange for the com-
modity of which he wishes
to dispose, is at all times a
value not to be disputed.
Vol. 2 4.

If there is no real deamess but that which arises
firom cost of productioHi {see 2. J how can a cofl|«

S32 VALUE AND RICHES, [cHAP, XX«

modity be said to rise in valae, ($ee 5. J if its cost
of production be not increased ? and merely be-
cause it will exchange for more of a cheap
commodity — for more of a commodity the cost of
production of which has diminished ? When I give
^000 times more cloth for a pound of gold than I
give for a pound of iron, does it prove that I
attach 2000 times more utility to gold than I do to
iron ? certainly not ; it proves only as admitted by
M. Say, (^see 4.^ that the cost of production of
gold is 2000 times greater than the cost of pro-
duction of iron. If the cost of production of the
two metals were the same, I should give the same
price for them ; but if utility were the measiu'e of
value, it is probable I should give more for the
iron. It is the competition of the producers " who
are perpetually employed in comparing the cost of
production with the value of the thing produced,**
(see 4.) which regulates the value of difierent commo-
dities. If, then, I give one shilling for a loaf, and 21
shillings for a guinea, it is no proof that this in my
estimation is the comparative measure of their
utility.

In No. 4, M. Say maintains with scarcely any
"variation, the doctrine which I hold conceniing
value. In his productive services, he includes the
services rendered by land, capital, and labour ; in
mine I include only capital and labour, and wholly
exclude land. Our difference proceeds £rom the
different view which we take ot rent : I always

CfiAP.:XX.3 THEIR MSTINCTIVfi PROPERTIES. SS8

consider it as the result of a partial monopoly,
never really regulating price, but rather as the •
effect of it. If all rent were relinquished by\
landlords, I am of opinion, that the commodities '
produced on the land would be no cheaper, because
there is always a portion of the same commodities
produced on land, for which no rent is or can be
paid, as the surplus produce is only sufficient to
pay the profits of stock*

To conclude, although no one is more disposed
than I am to estimate highly the advantage which
results to all classes of consumers, from the real
abundance and cheapness of commodities, I cannot
agree with M. .Say, in estimating the value of a
commodi^, by the abundance of other commodities
for which it will exchange ; I am of the opinion of
a very distinguished writer, M. Destutt de Tracy,
who says, that ** To measure any one thing is to
compare it with a determinate quantity of that
same thing which we take for a standard of com-
parison, for unity. To measure, then to ascertain
a length, a weight, a value, is to find how many
times they contain metres, grammes, francs, in a
word, unities of, the same description/* A franc
is not ^ measure of value for any thing, but for a
quantity of the same metal of which francs are made,
unless francs, and the thing to be measured, can be
referred to some other measure which is common
to both. This, I think, they can be, for they are
both theye^ult of labour j and, therefore, labour is

a common measure, by which their real as wdl ag
their relative value may be estimated. This also^
I am happy to say, appears to be M. Destutt de
Tracy's opinion *. He says, ** as it is certain that
our physical and moral faculties are alone our ori-
ginal riches, the employment of those faculties,
labour of some kind, is our <mly original treasure,
and that it is always from this employment, that
all those things are created which we call riches,
those which are the most necessary, as well as
those which are the most purely agreeable. It is
certain too, that all those things only represent the
labour which has created them, and if they have
a value, or even two distinct vlalues, they can only
derive them from that of the labour from which
they emanate/'

M. Say, in speaking of the excellences and iin-
perfections of the great work of Adam Smith, im-
putes to him, as an error, that ** he attributes to
the labour of man alone, the power of producing
value. A more correct analysis shews us that value
is owing to the action of labour, or rather the in-
dustry of man, combined with the action of those
agents which nature supplies, and with that of
capital. His ignorance of this principle prev^it-

* Elemens d'Ideologie, Vol. iv. p. 99. — In this work M. de
Tracy has given a useful and an able treatise on the general
principles of Political Economy, and I am sorry to be obliged
to addy that he supports, by his authority, the definitions which
M. Say has given of the words ** value,'* <' riches,'* and ^* utili^.*'

CHAP. XX.] THEIB DISTDTCTIVS PROPERTIES. 985

ed him from establishing the true theory of the
influence of machinery in the production of
riches."

Jn contradiction to the opinion of Adam Smith,
M. Say, in the fourth chstpter, speaks of the value
which is given to commodities by natural agents,
such as the sun, the air, the pressure of the atmo
sphere, &c«, which are sometimes substituted for
the labour of man, and sometimes concur with him
in producing *• But these natural agents, though
they add greatly to value in use, never add ex«

* ** The first man who knew how to soften metals by fire, is
not the creator of the value which that process adds to the melted
metal. That value is the result of the physical action of fire added
to the industry and capital of those who availed themselves of
this knowledge."

** From this error Smith has drawn this false result, that the
value of all productions represents the recent or former labour
of man, or, in other uxyrds^ that riches are nothing dse but aceu^
mutated labour; from tokich, by a second consequence^ equally
false y labour is the sole measure of riches^ or of the value of pro^
ductions*.** The inferences with which M. Say concludes, are
his own, and not Dr. Smith's ; they are correct if no distinction
be made between value and riches, and in this passage M. Say
makes none: but though Adam Smith, who defined riches to.
(insist in the abundance of necessaries, convenience and enjoy-
ments of human life, would have allowed that machines and na-
tural agents might veiy greatly add to the riches of a country,
he would not have allowed that they add any thing to the valve
of those riches.

* Chap. iv. p. $U

SSd VAI-UE AND RICHES, [CHAP. XX.

changeable value, of which M. Say is speaking,
to a commodity : as 90on as by the aid of ma-
chinery, or by the knowledge of natural philo-
sophy, you oblige natural agents to do the work
which was before done by man, the exchange-
able value of such work falls accordingly. If
ten men turned a com mill, and it be discover-
ed that by the assistance of wind, or of water,
the labour of these ten men may be spared, the
flour which is the produce partly of the work
performed by the mill, would immediately &11 in
value, in proportion to the quantity of labour
saved ; and the society would be richer by the
commodities which the labour of the ten men
could produce, the funds destined for their main-
tenance being in no degree impaired. M. Say
constantly overlooks the essential difference that
there is between value in use, and value in ex-
change.

M. Say accuses Dr. Smith of having over-
looked the value which is given to commodities
by natural agents, and by machinery, because he
considered that the value of all things was de-
rived from the labour of man ; but it does not
appear to mc, that this charge is made out^ for
Adam Smith no where undervalues the services
which these natural agents and machinery per-
form for us, but he very justly distinguishes the
nature of the value which they add to commo-
dities— they are serviceable to us, by increasing

CHAP. XX. J THEIR DISTINCTIVE PROPERTIES. 337

the abundance of productions, by making men
richer, by adding to value in use ; but as they
perform their work gratuitouslyi as nothing is paid
for the use of air, of heat, and of water, the as-
sistance which they aiibrd us, adds nothing to
value in exchange.

CHAFFER XXI.

EFFECTS OF ACCUMULATION ON PRO-
FITS AND INTEREST.

From the account which has been given of the
profits of stock, it will appear, that no accumula-
tion of capital will permanently lower profits, un-
less there be some permanent cause for the rise of
wages. If the funds for the maintenance of labour
were doubled, trebled, or quadrupled, there would
not long be any difficulty in procuring the requisite
number of hands, to be employed by those fiinds ;
but owing to the increasing difficulty of making
constant additions to the food of the country, funds
of the same value would probably not maintain the
same quantity of labour. If the necessaries of the
workman could be constantly increased with the
same facility, there could be no permanent altera-
tion in the rate of profits or wages, to whatever
amount capital might be accumulated. Adam
Smith, however, uniformly ascribes the fall of pro*
fits to accumulation of capital, and to the compe-
tition which will result from it, without ever
adverting to the increasing difficulty of providing
food for the additional number of labourers which

CHAP. XXI.] ElPFBCTS OF ACCUMULATION, &C. 33^

the additional capital will employ. ** The increase
of stock/' he says, ** which raises wages, tends to
lower profit. When the stocks of many rich mer-
chants are turned into the same trade, their mutual
competition naturally tends to lower its profit ; and
when there is a like increase of stock in all the
different trades carried on in the same society, the
same competition must produce the same effect in
all." Adam Smith speaks here of a rise of wages,
but it is of a temporary rise, proceeding from in-
creased funds before the population is increased ;
and he does not appear to see, that at the same time
that capital is increased, the work to be effected by
capital, is increased in the same proportion. M»
Say has, however, most satisfactorily shewn, that
there is no amount of capital which may not be
employed in a country, because demand is only
limited by production. No man produces, but with
a view to consume or sell, and he never sells, but
with an intention to purchase some other commo-
dity, which may be immediately useful to him, or
which may contribute to future production. By
producing, then, he necessarily becomes^either the
consumer of his own goods, or the purchaser and
consumer of the goods of some other person. It
is not to be supposed that he should, for any length
of time, be ill-informed of the commodities which
he can most advantageously produce, to attain the
object which he has in view, namely, the possession
of other goods ; and, therefore, it is not probable

z «

340 EFFECTS OF ACCUMULATION [CHAP. XXU

that he will continually produce a commodity for
which there is no demand*.

There cannot, then, be accumulated in a coun-
try any amount of capital which cannot be em-
ployed productively, until wages rise so high in
consequence of the rise of necessaries, and so little
consequently remains for the profits of stock, that
the motive for accumulation ceasest.. While the
profits of 'Stock are high, men will have a motive to
accumulate. Whilst a man has any wished-for
gratification unsupplied, he will have a demand for
more commodities j and it will be an efiectual de-
mand while he has any new valuetooflfer in exchange
for them. If ten thousand pounds were given to a

* Adam Smith speaks of Holland, as afibrding an instance <^
the fall of profits from the accumulation of capital, and from
every employment being consequently overcharged. '' The
Government there borrow at 2 per cent., and private people of
good credit, at 3 per cent." But it should be remembered, that
Holland was obliged to import almost all the com which she
consumed, and by imposing heavy taxes on the necessaries of
the labourer, she further raised the wages of labour. These
facts will sufficiently account for the low rate of profits and in-
terest in Holland.

f Is the following quite consistent with M. Say's principle?
" The more disposable capitals are abundant in proportion to
the extent of employment for them, the more will the rate of
interest on loans of capital fall."— Vol. ii. p. 108. If capital to
any extent can be employed by a country, how can it be said to
be abundant, compared with the extent of employment for it?

CHAP. Xn.] OK PROFITS AND INTEREST. 841

man having 100,000/. per annum, he would not
lock it up in a chest, but would either increase his
expenses by 10,000/. ; employ it himself produc-
tively, or lend it to some other person for that pur«
pose ; in either case, demand would be increased^
although it would be for difierent objects. If he
increased his expenses, his effectual demand might
probably be for buildings, furniture, or some such
enjoyment. If he employed his 10,000/. produc*
tively, his effectual demand would be for food|
clothing, and raw material, which might set new
labourers to work ; but still it would be demand^.

Productions are alwiays bought by productions,
or by services ; money is only the medium by which
the exchange is effected. Too much of a partlcu«
lar commodity may be produced, of which there

* Adam Smith says, that ** When the produce of anj particu*
lar branch of industry exceeds what the demand of the country
requires, the surplus must be sent abroad, and exchanged for
something for which there is a demand at home. Without, such
exportation^ a pari of the productive UAour of the country must
cease f and the value of its annual produce diminish. The land and
Ubour of Great Britain produce generally more com, woollens,
and hardware, than the demand of the home market requires.
The surplus part of them, therefore, must be sent abroad, and
exchanged for something for which there is a demand at home*
It is only by means of such exportation, that this surplus can
acquire- a value sufficient to compensate the labour and expens#
of producing it." One would be led to think by the above pas*
sage, that Adam Smith concluded we were under some necessity
of producing a surplus of com, woollen goods, and hardware,

and

342 EFFECTS OF: ACCUMULATION |^CHAF. XXU

may be such a glut in the market, as not to rqiay
the ciq>ital expended on it ; but this cannot be the
case with respect to all commodities ; the demand
for com is limited by the mouths which are to eat
it, for shoes and coats by the persons who are to
wear them ; but though a community, or a part of
a community, may have as much com, and as many
hats and shoes, as it is able or may wish to con-
sume, the same cannot be said of every commodity
produced by nature or by art. Some would con-
sume more wine, if they had the ability to procure
it* Others having enough of wine, would wish to
increase the quantity or improve the quality of
their fumiture. Others might wish to ornament
their grounds, or to enlarge their houses. The
wish to do all or some of these is implanted in
every man's breast; nothing is required but the
means, and nothing can afford the means, but an
increase of production. If I had food and neces-
saries at my disposal, I should not be long in want

and that the capital w h'ch produced them could not be other-
wise emplojed. It is, however, alw^jjfs a matter of choice in
what way a capital shall be employed, and therefore there can
never, for any length of time, be a surplus of any commodity;
for if there were, it would fall below its natural price, and capital
would be removed to some more profitable employment. No
writer has more satisfactorily and ably shewn than Dr. Smith,
the tendency of capital to move from employments in whi<^ the
goods produced do not repay by their price the whole expenses,
including the ordinary profits, of producing and bringing them
to market*.

* Sec Chap. X. Book I.

CHAP« XXI.] OK PROFITS AND INTSaSST. 94fS

of workmen who would put me in possession of
i^ome of the objects most useful or most desirable
to me.

Whether these increased productions, and the
consequent demand which they occasion, shall or
shall not lower profits, depends solely on the rise
of wages i and the rise of wages, excepting for a
limited period, on the facility of producing the food
and necessaries of the labourer. I say excepting
for a limited period, because no point is better
established, than that the supply of labourers will
always ultimately be. in proportion. to the means of
supporting them*

There is only one case, and that will be tempo-
rary, in which the accumidation of capital with a low
price of food may be attended with a fall of profits ;
land that is, when the funds for the maintenance
of labour increase much more rapidly than popu*
lation ; — wages will then be high, and profits low.
If every man were to forego the use of luxuries,
and be intent only on accumulation, a quantity of
necessaries might be produced, for which there
could not be any immediate consumption. Of
commodities so limited in number, there might un-
doubtedly be an universal glutp and consequently
there might neither be demand for an additional
quantity of such commodities, nor profits on the
employment of more capital. If men ceased to
consume, they would cease to produce. This ad-

8M EFFBCT8 OF ACCUMULATIOH [cUkP. XXI.

floission does not itnpu^ the general jninciple. In
such a country as England, for example, it is diffi-
cult to suppose that there can be any dispo^tion
to devote the whole capital and labour of the
country to the production of necessaries only.

When merchants engage their capitals in foreign
trade, or in the carrying trade, it is always from
choice, and never firom necessity : it is because in
that trade their profits will be somewhat greater
than in the home trade.

Adam Smith has justly observed ^ that the de-
sire of food is limited in every man by the narrow
capacity of the human stomach, but the desire of
the conveniences and ornaments ci building, dress,
equipage, and household funnture, seems to have
no limit or certain boundary.'' Nature then has
necessarily limited the amount of capital whidi caa*
at any one time be {profitably engaged in agncul-
tture, but she has placed no limits to the amount of
capital that may be employed in procuring ** the
conveniences and ornaments '^ of life. To procure
liiese gratifications in the greatest abundance is
the oli^fect in view, and it is only because fonifp
trade, or the carrying trade, will accomplidi it
better, that men engage in them m preference to
manufacturing the commodities required^ or a mb«
stilute for them, at hcnne. If, however, fixim pe*
culiar circumstances, we were preduded fiton
enga^ng capital in f(»ne^ trade, or in the carry^

CHAP. XZI.] OK nOFTTfl AKD I»TBREST« 845

trade, ve diould, though with - less advantage,
employ it at home ; and while there is no limit to
the desire of *' conveniences, ornaments of building,
dress, equipage, and household furniture,'' there
can be no limit to the capital that may be employ^
ed in procuring them, except that which bounds
our power to maintain the workmen who are to
produce them.

Adam Smith, however, speaks of the carrying
trade as one, not of choice, but of necessity ; as if
the capital engaged in it would be inert if not so
employed, as if the capital in the home trade
could overflow, if not confined to a Iknited
amount. He says, ** when the capital stock of
any country is increased to such a degree, that it
cannot be all employed in mppb/ing the consumptUm^
and supporting the productive labour of that partis
cukar country^ the surplus part of it naturaUy dis-
gcoges itself into the carrying trade, and is
employed in performing the same offices to other
countries.''

^ About ninety^six thousand hogsheads of to-
bacco are annually piurchased with a part of the
surplus produce of British industry* But the de-
mand of Great Britain does not require, perhaps,
more tiian fourteen thousand* If the remaining,
eighty-two thousand, therefore, could not be sent
abroad and exchanged for some^ing more in demand
at h^mef the importation of. them would cease im-

346 &FFECT8 OF ACCUMULATION []CHAP. XXI.

mediatelyi and with it the productive labour qf oB
the inhabitants qf Great Britain, who are at present
employed in preparing the goods mih which these
eighty-two thousand hogsheads are amvuaUy pur-
phased.** But could not this portion of the pro-
ductive labour of Great Britain be employed in
preparing some other sort . of goods, with which
something more in demand at home might be pur-
chased ? And if it could not, might we not em-
ploy this productive labour, though with less
advantage, in making those goods in demand at
home, or at least some substitute for them ? If we
wanted velvets, might we not attempt to make
velvets ; and if we could not succeed, might
we not make more cloth, or some other object desir-
able to us ?

We manufacture commodities, and with them
t>uy goods abroad, because we can obtain a greater
quantity than we could make at home. Deprive
us of this trade, and we immediately manufacture
again for ourselves. But this opinion of . Adam
Smith is at variance with all his general doctrines
.on this subject. " If a foreign country can supply
us with a commodity cheaper than we ourselves can
make it, better buy it of them with some part
of the produce of our own industry, employed in a
way in which we have some advantage. The gene-
ral industry qf the country being atways in propor-
tion to the capital which employs it, will not thereby
be diminished, but only left to find out the way in

CHAP. XXI. J ON PROFITS AND INTEREST. . 347

which it can be employed with the greatest advan-
tage.''

i. ** Those, therefore, who have the com-
mand of more food than they themselves can con*
sume, are always willing to exchange the surplus,
or, what is the same thing, the price of it, for
gratifications of another kind. What is over and
above satisfying the limited desire, is given for the
amusement of those desires which cannot be satis-
fied^ but seem to be altogether endless. The poor,
m order to obtain food, exert themselves to gratify
those fancies of the rich ; and to obtain it more
certainly, they vie with one another in the cheap-
ness and perfection of their work. The number of
workmen increases with the increasing quantity of
food^ or with the growing improvement and cul-
tivation of the lands ; and as the nature of their
business admits of the utmost subdivisions of
labours, the quantity of materials which they can
work up increases in a much greater proportion
than their numbers. Hence arises a demand for
every sort of material which human invention can
employ, either usefully or ornamentally, in building,
dress, equipage, or household furniture ; for the
fossils and minerals contained in the bowels of the
earth, the precious metals, and the precious stones."

It follows then from these admissions that there
is no limit to demand— ruo limit to the employment
of capital while it yields any profit, and that how-

348 EFFBCTS OF ACCUMULATTOIT [cHAP. XXL

ever abundant capital may become, there is no
other adequate reason for a fall of profit but a rise
of wages, and further it may be added, that the
only adequate and permanent cause for the rise of
wages is the increasing difficulty of providing
food and necessaries for the increasing number of
workmen*

Adam Smith has justly observed, that it is ex-
tremely difficult to determine the rate of the pro-
fits of stock. ** Profit is so fluctuating, that even
in a particular trade, and much more in trades in
general, it would be difficult to state the average
rate of it. To judge of what it may have been fw-
merly, or in remote periods of time, with any de-
gree of precision must be altogether impossible/^
Yet since it is evident that much will be given for
the use of money, when much can be made by iU
he suggests that ** the market rate of interest will
lead us to form some notion of the rate of {urofits,
and the history of the progress of interest affinrd
us that of the progress of profits/^ Undoubtedly
if 'the market rate of interest could be accurately
known for any considerable period, we should have
a tolerably correct criterion, by which -to estimate
the progress of profits.

But in all countries, from mistaken notions of
policy, the State has interfered to prevent a fair
and free market rate of interest, by imposing heavy
and ruinous penalties on all those who shall take

CHAP. XXI.3 ON PBOFITS AND INTEREST. . 349

more thstn the rate fixed by law. In all countries
probably these laws are evaded, but records give us
little information on this head, and point out rather
the l^al and fixed rate, than the market rate of
interest. During the present war, Exchequer and
Navy Bills have been frequently at so high a dis-
count, as to affi>rd the purchasers of them 7, 8 per
cent«, or a greater rate of interest for their money.
Loans have been raised by Government at an in-
terest exceeding 6 per cent, and individuals have
been frequently obliged, by indirect means, to pay
more than 10 per cent, for the interest of money;
yet during this same period the legal rate of in-
terest has been uniformly at 5 per cent. Little de«
pendence for information then can be placed on
that which is the fixed and legal rate of interest,
when we find it may differ so considerably from
the market rate. Adam Smith informs us, that
from the S7th of Henry VIIL to 21st of James L
10 per cent, continued to be the legal rate of in-
terest. Soon after the Restoration, it was reduced
to 6 per cent., and by the 12th of Anne, to 5 per
cent. He thinks the legal rate followed, and did
not precede the market rate of int^est. Before the
American war. Government borrowed at S per
cent., and tiie people of credit in the capital, and
in many other parts of the kingdom at 3 j, 4, and
4^ per cent.

The rate of interest, though ultimately and per-
manently governed by the rate of profit, is how*

350 . EFFECTS OF ACCUMULATION [CHAP. XXI.

ever subject to temporary variations from other
causes* With every fluctuation in the quantity and
value of money, the prices of coiiimodities natu-
rally vary. They vary also, as we have already
shewn, from the alteration in the proportion of
supply to demand, although there should not be
either greater facility or difficulty of productiozb
^Vlien the market prices of goods fall from an
abundant supply, from a diminished demand, or
from a rise in the value of money, a manufacturer
naturally accumulates an unusual quantity of
finished goods, being unwilling to sell them at very
depressed prices. To meet his ordinary payments,
for which he used to depend on the sale of bis
goods, he now endeavours to borrow on credit,
And is oflen obliged to give an increased rate of
interest. This, however, is but of temporary dura-
tion; for either the manufacturer's expectations
were well grounded, and the market price of his
commodities rises, or he discovers that there is a
permanently diminished demand, and he no longer
resists the course of afl^s : prices fall, and money
and interest regain their real value. If by the dis-
covery of a new mine, by the abuses of banking,
or by any other cause, the quantity of money be
greatly increased, its ultimate e£fect is to raise the
prices of commodities in proportion to the increased
quantity of money ; but there is probably always
an interval, during which some effect is produced
on the rate of interest. '

CHAP; XXL] on profits AND INTEREST. 351

' The price of funded prop0rty is not a steady
criterion by which to judge of the rate of interest.
In time of war, the stock market is so loaded by
.the continual loans of Government, that the price
of stock has not time to settle at its fair level, be-
fore a new operation of funding takes place, or it
is affected by anticipation of political events. In
time' of peace, on the contrary, the operations of
the sinking fund, the unwillingness, which a par-
ticular class of persons feel to divert their funds to
any other employment . than that to which they
have been accustomed, which they think secure,
.and in which their dividends are paid with the ut-
most regularity, elevates the price of stock, and
consequently depresses the rate of interest on these
securities below the general market rate. It is ob-
servable too, that for different securities. Govern-
ment pays very different rates of interest. Whilst
1007. capital in 5 per cent, stock is selling for 95/.,
an exchequer bill of 100/., will be sometimes sel-
ling for 100/. 5s.y for which exchequer bill, no
more interest will be annually paid than 4/. lis. 3d. :
one of these securities pays to a purchaser at the
above prices, an interest of more than 5j per cent.,
the other but little more than 4^ ; a certain quan-
tity of these exchequer bills is required as a safe
and marketable investment for bankers ; if they
were increased much beyond this demand, they
would probably be as much depreciated as the
5 per cent, stock. A stock paying 3 per cent, per
annum will always sell at a proportionally greater

852 EFFECTS OF ACCUVULATIOK {[CHAP. XXI.

price than stock pitying 5 per cent., for the capi-
tal debt of neither can be discharged but at par,
or 100/« money for lOOL stock. Hie market rate
of interest may fall to 4 per cent., and Govon-
ment would then pay the holder of 5 per cent
stock at par, Unless he consented to take 4 per
cent, or some diminished rate of interest under
£ per cent. : they would have no advantage firmi
so paying the holder of S per cent, stock, till the
market rate of interest had fallen below 3 per cent,
per annum. To pay the interest on the national
debt, large sums of money are withdrawn ^j^db
circulation four times in the year for a few days.
These demands for money being only ten^raiy,
seldom aflfect prices; they are generally surmount-
ed by the payment of a large rate of interest*.

• ** All kinds of public loans/' obsenres M. S^y, ** vt at-
tended with the iooonvenience of vithdrairing ca^lali or pQr*
tions of capital, from productive emplojanents, to devote them
to consumption ; and when they take place in a country, the
Government of mhich does not inspire much confidence, they have
the further inconvenience of raising the interest of capitaL
Who would lend at 5 per cent, pecannum to agriculture, to ma-
nuiiicturers, and to commerce, when a borrower may be found
ready to pay an interest of 7 or 8 per cent.? That sort of in-
come, which is called profit of stock, would rise then at the
expense of the consumer. Consumption would be reduced by
the rise in the price of produce ; and the other productive ser-
vices would be less in demand, less well paid. The whole na-
tion, capitalists excepted, would be the sufferers from such a
state of things.*' To the question : ** who would lend money to
faivners, manu&cturers, and merchants, at 5 per cent, per an-
num, when another borrower, having little credit, woidd give

7 or a?"

CHAP. XXI.'] ON PROFITS AND INTEREST, 353

7 or 8?*' I reply* that every prudent and reasanable man
would. Because the rate of interest is 7 or 8 per cent, there,
where the lender runs extraordinary risk, is this any reason that
it shottid be equally high in those places where they are secured
from such risks ? M. Say allows, that the rate of interest de-
pends on the rale of profits ; but it does not therefore foUow^
that the rate of profits depends on the rate of interest. One is
the cau^e, the other the effect, and it is impossible for any cir-
chmstances to make them change places.

CIIAFrER XXII.

BOUNTIES ON EXPORTATION, AND
PROHIBITIONS OF IMPORTATION.

A BOUNTY on the exportation of com tends to
lower its price to the foreign consumer, but it has
no permanent effect on its price in tlie home
market.

Suppose that to afibrd the usugl and general
profits of stock, the price of com should in Eng-
land be 4fL per quarter ; it could not then be ex-
ported to foreign countries where it sold for 31.
15s. per quarter. But if a bounty of 105. per
quarter were given on exportation, it could be sold
in tlie foreign market at 3/. 10^., and consequently
the same profit would be afforded to the com
grower, whether he sold it at SL 10s. in the foreign,
or at 4/. in the home market.

A bounty then, which should lower the price
of British com in the foreign country, below tlie
cost of producing com in that country, would
naturally extend the demand for British, and di-
minish the demand for their own com. This ex-
tension of demand for British com could not fail

CHAP. XXII. ] PROHIBITIONS OF IMPORTATION. 355

to raise its price for a time in the home market,
and during that time to prevent also its &lling sp
low in tlie foreign market as the bounty has a. ten- .
dency to effect. But the causes which would thus
operate on the market price of com in England
would produce no effect whatever on its natural
price, or its real cost of production. To grow
com would neither require more labour nor more
capital, and, consequently, if the profits of the
farmer's stock were before only equal to the profits
of the stock of other traders, they will, after tlie
rise of price, be considerably above them. By
raising the profits of tlie farmer's stock, the bounty
will operate as an encouragement to agriculture,
and capital will be withdrawn from manufactures
to be employed on the land, till the enlarged de-
mand for the foreign market has been supplied,
when the price of com will again fall in the home ^ , !
market to its natural and necessary price^ and pro- ^c /
fits will be again at their ordinary and accustomed /^'
level. The increased supply of grain operating on . i
the foreign market^ will also lower its price in the^ »^ *
country to which it is exported, and will thereby
restrict tlie profits of the exporter to the lowest
rate at which he can afford to trade.

The ultimate effect then of a bounty on the ex-
portation of com, is not to raise or to lower the
price in the home market, but to lower the price of
com to the foreign consumer — ^to the whole ex-
tent of the bounty, if the price of com had not be»

AA 2

t.t»

/ ,*

« ^

356 BOUNTIES ON EXPORTATION, AND [CHAP. XXIt.

fore been lower in the foreign, than in the home
market— and in a less degree, if the price in the
home had been above the price in the foreign

market.

A writer in the fifth vol. of the Edinburgh
Review, on the subject of a bounty on the expor-
tation of com, has very clearly pointed out its ef-
fects on the foreign and home demand. He has also
justly remarked, that it would not fail to give en-
couragement to agriculture in the exporting coun*
try ; but he appears to have imbibed the common
error which has misled Dr. Smith, and, I believe,
most other writers on this subject. He supposes,
because the price of com ultimately regulates
wages, that therefore it will regulate the price of
an other commodities. He says that the bounty,
" by raising the profits of farming, will operate as
an encouragement to husbandry; by raising the
price of com to the consumers at home, it will di-
minish for the time their power of purchasing this
necessary of life, and thus abridge their real wealtii.
It is evident, however, that this last effect must be
temporary : the wages of the labouring consumers
had been adjusted before by competition, and the
same principle will adjust them again to the same
rate, by raising the money price of labour, and^
through that J of other commodities^ to the money price
qfconu The bounty upon exportation, therefore,
will ultimately raise the the money price of com
ih the home market ; not directly, however, but
through the medium of an extended demand in the

CHAF. XXII.J PROHIBITIONS OF IMPORTATION. S57

foreign market, and a consequent enhancement of
the real price at home : and this rise of the money
price, when it has once been communicated to other
commodities^ will of course become Jixed.**

If, however, I have succeeded in shewing that
it is not the rise in the money wages of labour
which raises the price of commodities, but that
such rise always affects profits, it will follow that
the prices of commodities would not rise in con-
sequence of a bounty.

But a temporary rise in the price of corn, pro-
duced by an increased demand from abroad, would
have no effect on the money price of labour. The
rise oi com is occasioned by a competition for that
supply which was before exclusively appropriated
to the home market. By raising profits, additional
capital is employed in agriculture, and the increased
supply is obtained ; but till it be obtained, the high
price is absolutely necessary to proportion the con-
sumption to the supply, which would be counter-
acted by a rise of wages. The rise of com is the con-
sequence of its scarcity, and is the means by which
the demand of the home purchasers is diminished.
If wages were increased, the competition would
increase, and a further rise of the price of com
would become necessary. In this account of the
effects of a bounty, nothing has been supposed to
occur to raise the natural price of com, by which
its market price is ultimately governed ; for it has

358 BOUNTIES ON EXPORTATION, AND QcHAP, XXJI.

not been supposed, that any additional labour
would be required on the land to insure a given
production, and this alone can raise its natural price.
If the natural price of cloth were 90s. per yard, a
great increase in the foreign demand might raise
the price to 25^., or more, but the profits which
would then be made by the clothier would not fail
to attract capital in that direction, and although
the demand should be doubled, trebled, or qua-
drupled, the supply would ultimately be obtained,
and cloth would fall to its natural price of 90s.
So, in the supply of com, although we should ex-
port 2, 3, or 800,000 quarters annually, it would
ultimately be produced at its natural price, which
never varies, unless a difierent quantity of labour
becomes necessary to production.

Perhaps in no part of Adam Smith's justly cele-
brated work, are his conclusions more liable to ob-
jection, than in the chapter on bounties. In the
first place, he speaks of com as of a commodity of
which the production cannot be increased, in con-
sequence of a bounty on exportation ; he supposea
invariably, that it acts only on the quantity actually
produced, and is no stimulus to further production.
•* In years of plenty," he says, " by occasioning an
extraordinary exportation, it necessarily keeps up
the price of corn in the home market above what
it would naturally fall to. In years of scarcity,
though the bounty is frequently suspended, yet the
great exportation which it occasions in year^ of

CHAP. XXII.3 PROHIBITIONS OF IMPORTATION. 359

plenty, must frequently hinder, more or less, the
plenty of one year from relieving the scarcity of
another. Both in the years of plenty and in years
of scarcity, therefore, the bounty necessarily tends
to raise the money price of com somewhat higher
tlian it otherwise woidd be in the home market*."

Adam Smith appears to have been fully aware,
that the correctness of his argument entirely de-

* In another place he says, that " whatever extension of the
foreign market can be occasioned by the bounty^ roust, in every
particular year, be altogether at the expense of the home market;
as every bushel of com which is exported by means of the bounty,
and which would not have been exported without the bounty,
would have remained in the home market to increase the con-
sumption, and to lowei: the price of that commodity. The corn
bounty, it is to be observed, as well as every other bounty upon
exportation, imposes two different taxes upon the people : first,
the tax which they are obliged to contribute, in order to pay the
bounty ; and, secondly, the tax which arises from the advanced
price of the commodity in the home market, and which, as the
whole body of the people are purchasers of corn, must, in this
particular commodity, be paid by the whole body of the people.
In this particular commodity, therefore, this second tax is by
much the heaviest of the two." *' For every five shillings, there-
fore, which they contribute to the payment of tlie first tax, they
must contribute six pounds four shillings to the payment of the
second.'* " The extraordinary exportation of corn, therefore,
occasioned by the >bounty, not only in every particular year
diminishes the home, just as much as it extends the foreign
market and consumption ; but, by restraining the population
apd industry of the country, its final tendency is to stunt and
restrain the gradual extension of the home market, and thereby,
in the long run, rather to diminish than to augment the wliole
market and consumption of corn/'

860 BOUNTIES OK EXPORTATION, AND [CHAP. XXll*

pended on the &ct, whether the increase " of the
money price of com, by raidering that commodity
more profitable to the farmer, would not necessarily
encourage its production*''

^' I answer," he says, ** that this might be the
case, if the effect of the bounty was to raise the
real price of com, or to enable the farmer, with an
equal quantity of it, to maintain a greater nmnber
of labourers in the same manner, whether liberal,
moderate, or scanty, as other labourers are com-
monly maintained in his neighbourhood*''

If nothing were consumed by the labourer but
com, and if the portion which he received was the
very lowest which his sustenance required, there
might be some ground for supposing, that the
quantity paid to the labourer could, under no cir-
cumstances, be reduced^— but the money wages of
labour sometimes do not rise at all, and never rise
in proportion to the rise in the money price of com,
because com, though an important part, is only a
part of the consumption of the labourer. If half
his wages were expended on com, and the other
half on soap, candles, fuel, tea, sugar, clothing, &c.,
commodities on which no rise is supposed to take
place, it is evident that he would be quite as well
paid with a bushel and a half of wheat, when it
was 16^. a bushel, as he was with two bushels, when
the price was 8^. per bushel ; or with 24^. in money,
as he was before with 16^. His wages would rise

CHAP. XXU.Ji PROHIBITIONS OF IMPORTATION. 861

only 50 per cent, though com rose 100 per dent. ;
and, consequently, there would be sufficient motive
to divert more capital to the land, if profits on
other trades continued the same as before. But
such a rise of wages would also induce manu&c-
turers to withdraw their capitals from manufactures,
to employ them on the land; for whilst the farmer
increased the price of his commodity 100 per cent,
and his wages only 50 per cent., the manufacturer
would be obliged also to raise wages 50 per cent.,
whilst he had no compensation whatever, in the
rise of his manufactured commodity, for this in-
creased charge of production ; capital would conse-
quently flow from manufactures to agriculture, till
the supply would again lower the price of com to
8^. per bushel, and wages to 16^. per week; when
the manufacturer would obtain the same profits as
the farmer, and the tide of capital would cease to
set in either direction. This is in fact the mode in
which the cultivation of corn is always extended,
and the increased wants of the market supplied.
The funds for the maintenance of labour increase,
and wages are raised. The comfortable situation
of the labourer induces him to marry — population
increases, and the demand for com raises its price .
relatively to other things — ^more capital is pro-
fitably employed on agriculture, and continues to
flow towards it, till the supply is equal to the de-
mand, when the price again falls, and agricultural
and manufacturing profits are again brought to a
level.

362 BOUNTIES ON EXPORTATIOIif, AND [CHAP. XXII.

But whether wages were stationary after the rise
in the price of corn, or advanced moderately, or
enormously, is of no importance to this question,
for wages are paid by the manufacturer as well as
by the fanner, and, therefore, in this respect they
must be equally afiected by a rise in the price of
com. But they are unequally affected in their
profits, inasmuch as the farmer sells his commodity
at an advanced price, while the manufacturer sells
his for the same price as before. It is, however,
die inequality of profit, which is always the induce-
ment to remove capital from one employment to
another ; and, therefore, more com would be pro-
duced, and fewer commodities manufactured. Ma^
nufactures would not rise, because fewer would be
manufactured, for a supply of them would be ob-
tained in exchange for the exported com.

A bounty, if it raises the price of com, either
raises it in comparison with the price of other com-
modities, or it does not. If the affirmative be trae,
it is impossible to deny the greater profits of the
farmer, and the temptation to the removal of capi-
tal, till its price is again lowered by an abundant
supply. If it does not raise it in comparison with
other commodities, where is tlie injury to the home
consumer, beyond the inconvenience of paying the
tax ? If the manufacturer pays a greater price for
his com, he is compensated by the greater price at
which he sells his commodity, with which his com
is ultimately purchased.

CHAP. XXII.J PRQHIBlTIbNS OF IMPORTATION. S63

The error of Adam Smith proceeds precisely
from the same source as that of the writer in the
Edinburgh Review ; for they both think " that the
money price of com regulates that of all other
home-made commodities *.*' " It regulates," says
Adam Smith, " the money price of labour, which
must always be such as to enable the labourer to
purchase a quantity of corn sufficient to maintaia
him and his family, either in the liberal, moderate,
or scanty manner, in which the advancing, sta-
tionary, or declining circumstances of the society
oblige his employers .to maintain him. By regulat*
ing the money price of all the other parts of the
rude produce of land, it regulates that of the mate*
rials of almost all manufactures. By regulating the
money price of labour, it regulates that of manu*
facturing art and industry; and by regulating both,
it regulates that of the complete manufacture. Tfie
money price of labour ^ and df every tJung that is tite
produce either of land and labour^ must necessarily
rise or faU in proportion to the money price qf
com.**

This opinion of Adam Smith, I have before at-
tempted to reinte. In considering a rise in the
price of commodities as a necessary consequence
of a rise in the price of com, he reasons as though
there were no other fund from which the increased
pharge could be paid. He has wholly neglected

* The same opinion is held by M- Say. — Vol. ii. p. 335i

\
\

964 BOUNTIES ON SXP0RTATI6N, AND [[cHAP. XXU#

the consideration of profits, the diminution of
ivhich forms that fund, without raising the price of
commodities. If this opinion of Dr. Smith were
well founded, profits . could never really fall, what^
ever accumulation of capital there might be. If,
when wages rose, the farmer could raise the price
of his com, and the clothier, the hatter, the shoe-
niaker, and every other manufacturer, could also
raise the price of their goods in proportion to the
advance, although estimated in money they might
be all raised, they would continue to bear the
same value relatively to each other. Each of
these trades could command the same quantity
as before of the goods of the others, which, since
it is goods, and not money, which constitute wealth,
is the only circumstance that could be of import-
ance to them ; and the whole rise in the price of
raw produce and of goods, would be injurious to
no other persons but to those whose property con-
sisted of gold and silver, or whose annual income
was paid in a contributed quantity of those metal^
whether in the form of bullion or of money. Sup-
pose the use of money to be wholly laid aside, and
all trade to be carried on by barter. Under such
circumstances, could com rise in exchangeable
value with other things ? If it could, then it is not
true that the value of com regulates the value of
all other commodities ; for to do that, it should not
vary in relative value to them. If it could not»
then it must be maintained, that whether com be
obtained on rich, or on poor land, with much Uu

CHAP. XXII*! PROHIBITIONS OF IMPORTATION. 365

bour, or with little, with the aid of machinery, or
without, it would always exchange for an equal
quantity of all other commodities.

I cannot, however, but remark that, though
Adam Smith's general doctrines correspond with
this which I have just quoted, yet in one part of
his work he appears to have given a correct ac-
count of the nature of value. *' The proportion
between the value of gold and silver, and that of
goods of any other kind, depends in all cases," he
says, '* upon the proportion between the qiumtity of
labour which is neccessary in order to bring a cer^
tain qiumtity qf gold and silver to market^ and that
which is necessary to bring thither a certain qiumtity
of any other sort of goods.^^ Does he not here fully
acknowledge that if any increase takes place in the
quantity of labour, required to bring one sort of
goods to market, whilst no such increase takes place
in bringing another sort thither, the first sort will
rise in relative value. If no more labour than be-
fore be required to bring either cloth or gold to
market, they will not vary in relative value, but if
more labour be required to bring com and shoes
. to market, will not com and shoes rise in value re-
latively to cloth, and money made of gold ?

Adam Smith again considers that the effect of
the bounty is to cause a partial degradation in the
value of money. " That degradation,'^ says he,
" in the value of silver^ which is the effect of the

S66 BOUNTIES ON EXPOETATIOK, AiTD {[cHAP.

fertiUty of Uie mines, and which operates eqoallj,
or very nearly equally, through the greater part of
tlie commercial world, is a matter of very little
consequence to any particular country. The con-
sequent rise of all money prices, though it does not
make those who receive them really richer, does
not make them really poorer. A service of plate
becomes really cheaper, and every thing dse re*
mains precisely of the same real value as before/'
This observation is most correct.

" But that degradation in tlie value of silver,
which being the effect eitlier o£ the peculiar situa-
tion, or of the political institutions of a particular
country, takes place only in that country, is a
matter of very great consequence, which, far fiom
tending to make any body really richer, tends to
make every body really poorer. The rise in the
money price of all commodities, which is in this
case pecuUar to that country, tends to discourage
more or less every sort of industry which is carried
on within it, and to enable foreign nations, by fur-
nis^ing almost all sorts of goods for a smaller quan-
tity of silver than its own workmen can afford to
do, to undersell them, not only in the foreign, but
even in the home market."

I have elsewhere attempted to shew that a par-
tial degradation in the value of money, which shall
affect both agricultural produce, and manufactured
commodities, cannot possibly be permanent* To

CHAP. XXII*] PROHIBITIONS OF IMPOBTATIOK. 3&7

say that money is partially degraded, in this sense,
is to say that all commodities are at a Irigh price ;
but while gold and silver are at liberty to make
purchases in the cheapest market, they will be e?^-
ported for the cheaper goods of other countries,
and the reduction of their quantity, will increase
their value at home ; ccmimodities will regain their
usual level, and those fitted for foreign markets
will be exported, as before.

A bounty, therefore, cannot, I think, be objected
to on this ground.

If then, a bounty raises the price of corn in com-
parison with all other things, the farmer will be
benefited, and more land will be cultivated ; but if
the bounty do not raise the value of com relatively
to other things, then no other inconvenience will
attend it, than that of paying the bounty ; one
which I neither wish to conceal nor underrate.

Dr. Smith states, that " by establishing high
duties on the importation, and bounties on the ex-
portation of corn, the country, gentlemen seemed
to have imitated the conduct of the manufacturers.'*
By the same means, both had endeavoured to raise
the value of their commodities. " They did not,
perhaps, attend to the great and essential difference
ivhich nature has established between corn, and
^most every other sort of goods. Wlien by either
of the above means, you enable oirl" manufacturer*

368 BOUNTIES ON EXPORTATION, AND [cHAP. XXH.

to sell their goods for somewhat a better price
thte-they Otherwise could get for them, you raise
not onlythe-nominai, but the real price of those
goods. You inci^sase not only the n<»ninal, but
the real profit, the real wealth and revenue of those
manufagturcro you -Really encourage those manu-
factures. But when, by the like institutions, you
raise the nominal or money price of com, you do
not raise its real value, you do not increase the real
wealth of our farmers or country gentlemen, you
do not encourage the growth of com. Tlie nature
of things has stamped upon com a real value,
which cannot be altered by merely altering its
money price. Through the world in genera], that
value is equal to the quantity of labour which it
ran maintain."

I have already attempted to shew, that the
market price of corn would, under an increased
demand from the eiiects of a bounty, exceed its
natural price, till the requisite additional supply
was obtained, and that then it would again &11 to
its natural price. But the natural price of com
is not so fixed as the natural price of commodities;
because, with any great additional demand for com,
land of a worse quality must be taken into cultiva-
tion, on which more labour will be reqtured to
produce a given quantity, and the natural price of
com will be raised. By a continued bounty, there-
fore, on the exportation of com, there would be
created a tendency to a permanent rise in the price

CHAP, XXII.] PROHIBITIONS OP IMPORTATIOK. 369

of corn, and this, as I have shewn elsewhere*,
never fails to raise rent. Country gentlemen, th^i,
have not only a temporary but a permanent in-
terest in prohibitions of the importation of com,
and in bounties on its exportation ; but manufac-
turers have no permanent interest in establishing
high duties on llie importation, and bounties on the
expmtation of commodities; their interest is wholly
temporary.

A bounty on the exportation of manufactures
will, undoubtedly, as Dr. Smith contends, raise for a
time the market price of manufactures, but it will
not raise their natural price. The labour of SOO men
will produce double the quantity of these goods that
100 could produx^ before ; and, consequently, when
the requisite quantity of capital was employed in
supplying the requisite quantity of manufactures,
they would again fall to their natural price, and all
advantage from a high market price would cease.
It is, then, only during the interval after the rise in
the market price of commodities, and till the addi-
tional supply is obtained, that the manufacturers
wiU eiQoy high profits; for as sooq as prices had
subsided, their profits would sink to the general
leveL

Instead of agreeing, therefore, with Adam Smith,
that the coimtry gentlemen had not so great an in-
terest in prc^biting the impcxrtation of corn, as the

• See Chapter on Rent.

B B

370 BOUNTIES ON EXPORTATION, AND [^CHAP. XXII.

manufacturer had in prohibiting the importation of
manufactured goods, I contend, that they have a
much superior interest ; for their advantage is per-
manent, while that of the manufacturer is only
temporary. Dr. Smith observes, that nature has
established a great and essential difference between
com and other goods, but the proper inference
from that circumstance is directly the reverse of
that which he draws from it ; for it is on account
of this difference that rent is created, and that
country gentlemen have an interest in, the rise of
the natural price of com. Instead of comparing
the interest of the manufacturer with the interest
of the country gentleman, Dr. Smith should have
compared it with the interest of the farmer, which
is very distinct from that of his landlord. Manu-
facturers have no interest in the rise of the natural
price of their commodities, nor have farmers any
interest in the rise of the natural price of com, or
cither raw produce, though both these classes are
benefited while the market price of their. produc-
tions exceed their natural price. On the contrary,
'landlords have a most decided interest in the rise
of the natural price of com ; for the rise of rent
is the inevitable consequence of the difficulty of
producing raw produce, without which its natural
price could not rise. Now, as bounties on export-
ation and prohibitions of the importation of com
increase the demand, and drive us to the cultiva-
tion of poorer lands, they necessarily occasion an
increased difficulty of production.

CHAP.XXII.] PROHIBITIONS OP IMPORTATION. 371

The sole effect of high duties on the importation
either of manufactures or of com, or of a bounty
on their exportation, is to divert a portion of capi-
tal to an employment, which it would not naturally
seek* It causes a pernicious distribution of the
general funds of the society — it bribes a manu&c*
turer to commence or continue in a comparatively
less profitable emplo}anent. It is the worst species
of taxation, for it does not give to the foreign
country all that it takes away from the home coun-
try, the. balance of loss being made up by the less
advantageous distribution of the general capital.
Thus, if the price of com is in England 4/. and
in France 3L 15s» a bounty of 105. will ultimately
reduce it to 3L 10s. in France, and maintain it at
the same price of 4/. in England. For every quar- / ; \'^
ter exported, England pays a tax of 105. Fotj
every quarter imported into France, France gains
only 5s.f so that the value of 5s. per quarter is alv-
solutely lost to the world, by such a distribution of '' ^
its funds as to cause diminished production, proba- > • -
bly not of corn, but of some other object of ne-
cessity or enjoyment.

**• -r >

'/...

Mr. Buchanan appears to have seen the fallacy *
of Dr. Smith's arguments respecting bounties, and ;
on the last passage which I have quoted, very judi- ^
ciously remarks: ** In asserting that nature has
stamped a real value on com, which cannot be al-
tered by merely altering its money price, Dr. Smith
confounds its value in use Mrith its value in ex-

bb2

> k * « ^

J. I

87* BOUNTIES ON EXPORTATION, AND [CHAP. XXU.

change. A bushel of wheat will not feed more
people during scarcity than during plenty j but a
bushel of wheat will exchange for a greater quatf-
tity of luxuries and conveniences when it is scarce,
than when it is abundant ; and the landed proprie-
tors, who have a surplus of food to dispose of, will,
therefore, in times of scarcity, be richer men; they
will exchange their surplus for a greater value of
other enjoyments, than when com is in greater
plenty. It is vain to argue, therefore, that if the
bounty occasions a forced exportation of com, it
will not 'also occasion a real rise of price.*' The
whole of Mr. Buchanan's arguments on this part
of the subject of bounties, appear to me to be per-
fectly dear and satisfactory.

Mr. Buchanan, however, has not, I think, any
more than Dr. Smith, or the writer in the £din-
biu'gh Review, correct opinions as to the influence
of a rise in the price of labour on manu&ctured
commodities. From his peculiar views, which I
have elsewhere noticed, he thinks that the price of
labour has no connexion with the price of com,
and, therefore, that the real value of com might aod
would rise without affecting the price of labour ;
but if labour were affected, he would maintain
with Adam Smith and the writpr in the Edinburgh
Review, that the price of manufactured commodi-
ties would also rise ; and then I do not see how he
would distinguish such a rise of com, from a hS. in
the value of money, or how he could come to mj

CJSAP. XXII.3 PROHIBITIONS OF IMPORTATION. 373

other conclusion than that of Dr. Smith. In a
note to page 276, vol. i. of the Wealth of Nations,
Mr. Buchanan observes, <^ but the price of con)
does not regulate the. money price of all the other
parts of the rude produce of land. It regulates
the price neither of metals, nor of various other
useful substanceSi such as coals, wood, stones, &c. ;
and ds it does not regtdate the price of labour^ it does
not regulate the price of Tnanufactures ; so that the
bounty, in so far as it raises the price of corn, is
undoubtedly a real benefit to the farmer. It is
not on this ground, therefore, that its policy must
be argued. Its encouragement to agriculture, by
raising the price of com, must be admitted ; and
the question then comes to be, whether agricul-
ture ought to be thus encouraged?" — It is then,
iiccording to Mr. Buchanan, a real benefit to the
£umer, because it does not raise the price * of la^
bour } but if it did, it would raise the price of all
things in proportion, and then it would afibrd no
particular encouragement to agriculture.

It must, however, be conceded, that the ten-
dency of a bounty on the exportation of any com-
modity is to lower in a small degree the value of
money. Whatever facilitates exportation, "tends ^ ^.
to accumulate money in a country ; and, on the
contrary, whatever impedes exportation, tends to
diminish it. The general efiect of taxation, by
raising the prices of the commodities taxed, tends
to diminish exportation, and, therefore, to check the

S74 BOUNTIES ON EXPORTATION, AND [CHAP. XXJU

influx of money ; and on the same principle, a
bounty encourages the influx of money. This is
more fully explained in the general observations on
taxation.

The injurious eflTects of the mercantile system
have been fully exposed by Dr. Smith ; the whole
aim of that system was to raise the price of com-
modities, in the home market, by prohibiting fo-
reign competition ; but this system was no more
injurious to the agricultural classes than to any
other part of the community. By forcing capital
into channels where it would not oAerwise flow, it
diminished the whole amount of commodities pro-
duced. The price, though permanently higher,
was not sustained by scarcity, but by difficulty of
production ; and, therefore, though the sellers of
such commodities sold them for a higher price,
they did not sell them, after the requisite quantity
of capital was employed in producing them, at
higher profits*.

* M. Say supposes the advantage "of the manufacturen at
home to be more than temporary. ** A government whidi ab-
solutely prohibits the importation of certain foreign goods,
estublishes a monopoly injavour of those who produce such com-
modities at home, against those who consume them ; in other
words, those at home who produce them having the excloave
privilege of selling them, may elevate their price above the na-
tural price ; and the consumers at home, not -being able ta
obtain them elsewhere, are obliged to purchase them at a higher
price." Vol. i. p. 201.

But

CHAP. XXII.J PROHIBITIONS OF IMPORTATION. 375

The manu&cturers themselves, as consumers^
had to pay an additional price for such commodi-
ties, and, therefore, it cannot be correctly said, that
^* the enhancement of price occasioned by both,
(corporation laws and high duties on the importa-
tions of foreign commodities,) is every where
finally paid by the landlords, farmers, and labour-
ers of the country.**

It is the more necessary to make this remark, as
in the present day the authority of Adam Smith is
quoted by country gentlemen, for imposing similar
high duties on the importation of foreign com.
Because the cost of production, and, therefore, the
prices of various manufactured commodities, are
raised to the consumer by one error in legislation,
the country has been called upon, on the plea of
justice, quietly to submit to fresh exactions. Be-
cause we all pay an additional price for our linen,
muslin, and cottons, it is thought just that we
should pay also an additional price for our corn.
Because, in the general distribution of the labour
of the world, we have prevented the greatest

But how can they permanently support the market price of
their goods above the natural price, when every one of their
fellow citizens is free to enter into the trade ? They are guaran-
teed against foreign, but not against home competition. The
real evil arising to the country from such monopolies, if they
can be called by that name, lies, not in raising the market price
of such goods, but in raising their real and natural price. By
increasing the cost of production, a portion of the labour of the
country is less productively employed.

376 BOUNTIES ON EXPORTATION, AND [CHAP. XXU.

amount of productions from being obtained, by our
portion of that labour, in manufactured commodi-
ties, we should further punish ourselves by dimi-
nishing the productive powers of the general labour
in the supply of raw produce. It would be much
wiser to acknowledge the errors which a mistaken
policy has induced us to adopt, and immediately
to commence a gradual recurrence to the sound
principles of an universally free trade*.

" I have already had occasion to remark,*' oh-
serves M. Say, '^ in speaking of what is improperly
called the balance of trade, that if it suits a mer-
chant better to export the precious metals to a
foreign country than any other goods, it is also the
interest of the State that he should export them,
because the State only gains or loses tlu'ough the
. channel of its citizens ; and in what concerns
foreign trrde, that which best suits the individual,
best suits also the State ; therefore, by opposing
obstacles to the exportation which individuals would

* '' A freedom of trade is alone wanted to guarantee a coan-
try like Britain, abounding in all the varied products of indus-
try, in merchandise suited to the wants of every society, from
the possibility of a scarcity. The nations of the earth are not
condemned to throw the dice to determine which of thena shall
submit to famine. There is always abundance of food io the
world* To enjoy a constant plenty, we have only to lay aside
our prohibitions and restrictions, and cease to counleract the
benevolent wisdom of Providence." Article, " Com Laws and
Trade." Supplement to Encyclopaedia Britannica.

CHAP. XXII.] PROHIBITIONS OF IMPORTATION* 377

be inclined to make of the precious metals, nothing
more is done, than to force them to substitute some
other commodity less profitable to themselves and
to the State, It must, however, be remarked, that I
say only m what concerns foreign trade; because
the profits which merchants make by their deal-
ings with their countrymen, as well as those which
are made in the exclusive commerce with colonies,
are not entirely gains for the State. In the trade
between individuals of the same country, there is
no other gain but the value oi an utility produced;
que la vaieur. (Tune tUilite produite*" Vol. i.
p. 401. I cannot see the distinction here made
between the profits of the home and foreign trade.
The object of all trade is to increase productions.
If for the purchase of a pipe of wine, I had it in

* Are not the following passages ccmtradictory to the one
above quoted? ** Besides, that home trade, though less no-
ticed, (because it is in a variety of hands) is the most consi-
derable, it is also the most profitable. The commodities ex-
changed in that trade are necessarily the productions of the
same country." Vol. i. p. 84.

** The English Government has not observed, that the most
profitable sales are those which a country makes to itself, be«
cause they cannot take place, without two values being pro-
duced by the nation ; the value which is sold, and the Talue
with which the purchase is made." Vol. I p. 221.

I shaliy in the 26th chapter examine the soundness of this
opinion.

378 BOUNTIES ON EXPOKTATION, AND f CHAP. XXlh

my power to export bullion, which was bought
with the value of the produce of 100 days' labour,
but Government, by prohibiting the exportation of
bullion, should oblige me to purchase my wine
with a commodity bought with the value of the
produce of 105 days' labour, the produce of five
days' labour is lost to me, and, through me, to the
State. But if these transactions took place be-
tween individuals, in different provinces of the
same country, the same advantage would accrue
both to the individual, and, through him, to the
country ; if he were unfettered in his choice of the
commodities, vrith which he made his purchases ;
and the same disadvantage, if he were obliged by
Government to purchase with the least beneficial
commodity. If a manufacturer could work up with
the same capital, more iron where coals are plen-
tiful, than he could where coals are scarce, the
country would be benefited by the difference. But
if coals where no where plentiful, and he imported
iron, and could get this additional quantity, by the
manufacture of a commodity, with the same C2^i-
tal and labour, he would in like manner benefit his
country by the additional quantity of iron. In the
6th Chap, of this work, I have endeavoured to
shew that all trade, whether foreign or domestic,
is beneficial, by increasing the quantity, and not
by increasing the value of productions. We shall
have no greater value, whether we carry on the most
beneficial home and foreign trade, or in consequence

CHAP. XXII.] PROHIBITIONS OF IMPORTATION, 379

of being fettered by prohibitory laws, we are ob-
liged to content ourselves with the least advantage-
ous. The rate of profits, and the value produced,
will be the same. The advantage always resolves
itself into that which M. Say appears to confine to
the home trade ; in both cases there is no other
gain but that of the value of an utiUte prodtute.

CHAPTER XXlir

ON BOUNTIES ON PRODUCTIONS.

It may not be uninstructive to consider the eflfects
of a bounty on the prodtiction of raw produce and
other commodities, with a view to observe the ap-
plication of the principles which I have been en-
deavouring to establish, ydth regard to the profits
of stock, the division of the annual produce of the
land and labour, and the relative prices of manu-
factures and raw produce. In the first place let
us suppose that a tax was imposed on all commodi-
ties, for the purpose of raising a fund to be em-
ployed by Government, in giving a bounty on the
production of com. As no part of such a tax would
be expended by Government, and as all that was
received from one class of the people, would be
returned to another, the nation collectively would
neither be richer nor poorer, from such a tax and
bounty. It would be readily allowed, that the tax
on commodities by which the fund was created,
would raise the price of the commodities taxed;
aU the consumers of those commodities, therefore,
would contribute towards that fund; in other
words, their natural or necessary price being
raised, so would, too, their market price. But for

CHAP. XXin.] ON BOUNTIES ON PRODUCTION, 381

the same reason that the natural price of those
commodities would be raised, the natural price of
com would be lowered ; before the bounty was
jpaid on production, the farmers obtained as great
a price for their com as was necessary to repay
them their rent and their expenses, and afford
them the general rate of profits ; after the bounty,
they would receive more than that rate, unless the
price of corn fell by a sum at least equal to the
bounty. The effect then of the tax and bounty,
would be to raise the price of commodities in a de-
gree equal to the tax levied on them, and to lower
the price of com by a sum equal to the bounty
paid» It will be observed, too, that no permanent
alteration could be made in the distribution of
capital between agricidture and manufactures, be-
cause as there would be no alteration, either in the
amount of capital or population, there would be
precisely the same demand for bread and manu-
factures. The profits of the farmer would be no
higher than the general level, after the fall in the
price of com ; nor would the profits of the manu-
facturer be lower after the rise of manufactured
goods ; the bounty then WQidd not occasion any
more capital to be employed on the land in the
production of <*ora, nor any less in the manufacture
of go6ds. But how would the interest of the
landlord be affected ? On the same principles that
a tax on raw produce would lower the com rent
of land, leaving the money rent unaltered, a bounty
on production, which is directly the contrary of a

382 OK BOUNTISS ON PRODUCTION. (^CHAP. XXIII.

tax, would raise com rent, leaving the money rent
unaltered*. With the same money rent th*e land-
lord would have a greater price to pay for his ma-
nufactured goods, and a less price for his com ; he
would probably therefore be neither richer nor
poorer.

Now, whether such a measure would have anv
operation on the wages of labour, would depend
on the question, whether the labourer, in pur-
chasing commodities, would pay as much towards
the tax as he would receive from the eflfects of the
bounty, in the low price of his food. If these two
quantities were equal, wages would continue un-
altered ; but if the commodities taxed were not
those consumed by the labourer, his wages would
fall, and his employer would be benefited by the
difference. But this is no real advantage to his
employer ; it would indeed operate to increase the
rate of his profits, as every fall of wages must do ;
but in proportion as the labourer contributed less
to the fund from which the bounty was paid, and
which, let it be remembered^ must be raised, his
employer must contribute more ; in other words
he would contribute as much to the tax by his ex-
penditure, as he would receive in the effects of the
bounty and the higher rate of profits together. He
obtains a higher rate of profits to requite him for
bis payment, not only of his own quota of the tax,

♦ Seep.l7^

CHAP. XXIII.] ON BOUNTIES ON PRODUCTION, 383

but of his labourer's also ; the remuneration which
he receives for his labourer's quota, appears in di-
minshed wages, or, which is the same thing, in in-
creased profits ; the remuneration for his own ap-
pears in the diminution in the price of the com
which he consumes, arising from the bounty.

Here it will be proper to remark tlie difierent
effects produced on profits from an alteration in the
real labour, or natural, value of com, and an alter-
ation in the relative value of com, from taxation
and from bounties. If corn is lowered in price by
an alteration in its labour price, not only will the
rate of the profits of stock be altered, but the condi-
tion of the capitalist will be improved. With greater
profits, he wiU have no more to pay for the objects
on which those profits are expefnded ; which does
not happen,, as we have just seen, when the fall is
occasioned artificially by a bounty. In the real fall
in the value of com, arising from less labour being
required to produce one of the most important ob-
jects of man's consumption, labour is rendered
more productive. With the same capital the same
labour is employed, and an increase of productions
is the result ; not only then will the rate of profits
be increased, but the condition of him who obtains
them will be improved ; not only will each capi-
talist have a greater money revenue, if he employs
the same money capital, but also when that money
is expended, it will procure him a greater sum of

38* ON BOUNTIES ON PEODUCTION, [CHAP, XXUI.

commodities ; his enjoyments will be augmented
In the case of the bounty, to balance the advantage
which he derives from the fall of one conunodityi
he has the disadvantage of pa3n.ng a price more
than proportionally high for another ; he receives
an increased rate of profits in order to enable him
to pay this higher price ; so that his real situation,
though not deteriorated, is in no way improved :
though he gets a higher rate of profits, he has no
greater command of the produce of the land and
labour of the country. When the fall in the value
of com is brought about by natural causes, it is
not counteracted by the rise of other commodities;
on the contrary, they fall from the raw material
falling from which they are made : but when the
fidl in com is occasioned by artificial means, it is
always counteracted by a real rise in the value
of some other commoditity, so that if com be
bought cheaper, other commodities are bou^t
dearer.

This then is a further prooi^ that no particular
disadvantage arises from taxes on necessaries^ on
account of their raising wages and lowering the
rate of prc^ts. Profits are indeed low»ed, but
only to the amount of the labourer's portion of the
tax, which must at all events be paid either by his
employer or by the consunaer of the produce of
the labourer's work. Whether you deduct SdL
per annum frcxn the employer's revenue, or add

CHAP. XXIII.] ON BOUNTIES ON PROpUCTIONS. 385

50/. to the prices of the commodities which he
consumes, can be of no other consequence to him
or to the community, than as it may equally affect
all other classes. If it be added to the prices of
the commodity, a miser may avoid the tax by not
consuming ; if it be indirectly deducted from every
man*s revenue, he cannot avoid paying his fair
proportion of the public burthens.

A bounty on tlie production of com then, would
produce ho real effect on the annual produce of
the land and labour of the country, although it
would make corn relatively cheap, and manufac-
tures relatively dear. But suppose now that a con-

•

trary measure should be adopted, that a tax should
be raised on com for the purpose of affording a
fund for a bounty on the production of com-
modities.

In such case, it is evident that com would be
dear, and commodities cheap ; labour would con-
tinue at the same price if the labourer were as
much benefited by the cheapness of commodities
as he was injured by the deamess of corn 5 but if
he were not, wages would rise, and profits would
fall, while money rent would continue the same as
before ; profits would fall, because, as we have just
explained, that would be the mode in which the
labourer's share of the tax would be paid by the
employers of labour. By the increase of wages the

c c

380 ON BOUNTIES ON PRODUCTION. [CHAP. XXIII,

labourer would be compensated for the tax which
be would pay in the increased price of com ; hj
not expending any part of his wages on the manu-
facture commodities, he would receive no part of
the bounty ; the bounty would be all received by
the employers, and the tax would be partly paid by
the employed ; a remuneration would be made to
the labourers, in the shape of wages, for this in-
creased burden laid upon them, and thus the rate
of profits would be reduced. In this case too there
would be a complicated ^measure producing no na^
tidnal result whatever^

In considering this question, we have purposely
left out of our consideration the eflfect of such a
measure on foreign trade ; we have rather been
isupposing the case of an insulated country, having
no commercial connexion with other countries.
We have seen that as the demand of the country
for com and commodities would be the same, what-
ever direction the bounty might take, there would
^be no temptation to remove capital from one em-
ployment to another : but this would no longer be
the case if there were foreign commerce, and that
commerce were fi*ee. By altering the relatiTe
value of commodities and com, by producing so
powerful an effect on their natural prices, we should
' be appl}nng a strong stimulus to the exportation of
those commodities whose natural prices were low-
ered, and an equal stimulus to the importatiiNA of

CHAP. XXiri,] OK BOUKTIES ON PRODUCTION. S87

those commodities whose natural prices were raised,
and thus such a financial measure might entirely
alter the natural distribution of employments ; to
the advantage indeed of the foreign countries, but
ruinously to that in which so absurd a policy was
adopted.

c c «

CHAPTER XXIV.

DOCTRINE OF ADAM SMITH CONCERN-
ING THE RENT OF LAND.

" Such part* only of the produce of land,** says
Adam Smithj^. " can commonly be brought to
market, of which the ordinary price is sufficient
to replace the stock which must be employed in
bringing them thither, together with its ordinary
profits. If the ordinary price is more than this>
the surplus part of it will naturally go to the rent
of land. If it is not more^ though the comnoditycan
be brought to market, it can afford no rent to the
landlord. Whether the price is,, or is not more,
depends upon the demand."

This passage would naturally lead the reader to
conclude that its author coidd not have mistaken
the nature of rent, and that he must have seen that
the quaUty of land which the exigencies of society
might require to be taken into cultivation, would
depend on " the ordinary price qf its produce^
"whether it were " sufficient to replace the stocky
which must be employed in cultivating it^ together
with its ordinary projits^^

CHAP. XXIV.] CONCERNING THE RENT OP LAND. 389

•

But he had . adopted the notion that '^ there
were some parts of the produce of land for wliich
the demand must always be such as to afford a
greater price than what is sufficient to bring them
to market;" and he considered food as one of
those parts.

He says, that ^Mand, in almost any situation,
produces a greater quantity of food than what is
sufficient to maintain all the labour neceasary for
bringing it to market, in the most liberal way in
which that labour is ever maintained. The surplus,
too, is always more than sufficient to replace the
stock which employed that labour, together with
its profits. Something, therefore, always remains
for a rent to the landlord."

But what proof does he give of this ? — ^no other
than the assertion that " the most desert moors in
Norway and Scotland produce some sort of pasture
for cattle, of which the milk and the increase are
always more than sufficient, not only to maintain
all the labour necessary for tending them, and to
pay the ordinary profit to the farmer, or owner of
the herd or flock, but to affi^rd some small rent to
. the landlord." Now of this I may be permitted to
•entertain a doubt; I believe that as yet in every
■ coimtry, from the rudest to the most refined, there
is land of such a quality that it cannot yield a pro-
duce more than sufficiently valuable to replace the
stock employed upon it, together with the profits

SSO DOCTRIKB OF ADAM SMITH [cHAP. XXtV^^

•

ordinary ind usual in that couniiy. Ih Ameiica
we iall know that this is die case, and yet no one:
maintains diat the principles which regulate reot,
tfe different in that country and in Eorope. But
if it were tnke that England^had so far advanced in
cultivation, that at this time there were no lands
remaining which did not afford a rent, it would be
equally true, thdt there formerly must have been
toch lands; and that whether there be or not, is of
ho importance to this question, for it is the same
thing if there be any capital employed in Great
Britain on land which yields only the return of
stock with its ordinary profits, whether it be em-*
ployed on old or on hew land. If a farmer agiees
for land on a lease of seven or fourteen years, he
may propose to employ on it a capital of 10,000^,
knowing that at the existing price of grain and
raw produce, he can replace that part of his stock
which he is obliged to e^cpend, pay his rent, and
obtain the general rate of profit. He will not em-
ploy 11,000/., unless the last 1000/. tan be em-
ployed so productively as to affi>rd him the nsasl
profits of stock. In his calculation, whwher he shall
employ it or not, he considers only whether the price
of raw produce is sufiident to replace his expenses
and profits^ for he knows that he shall have no ad-
ditional rent to pay. Even at the expilUtion of his
lease his rent will not be raised ; for if his lan^Bord
should require rent, because this additional lOOOt
was -employed, he would withdraw it; since by
employing it, lie gets, by the suppositibn, only the

CJIAP. XXIV.] CONCERNING THE BENT OF LAND, 391

ordinary and usual profits which he may obtain by
aiiy other employment pf stock ; and, therefore, he
cannot afford to pay rent for it, unless the price of
raw produce should further rise, or, which is the
same thing, unless the usual and general rate of
profits should fall. *

If the comprehensive miud of Adam Smith had
been directed to this fact, he would not have main^
tained that rent forms one of the component pactd
of the price of raw produce ; for price is every
where regulated by thje return obtained by this
last portion of capital, for which no rent what-
ever is paid. If he had adverted to this principle,
he would have made no distinction, between the
l^w which regulates the rent of mines and the rent
of land.

" Whether a coal mine, for example,'* he says,
" can afford^ any rent, depends partly upon its fer-
tility, and partly upon its situation. A mine of
any kind may. be said to be either fertile or barren,
according as the quantity of mineral which can be
brought from it by a certain quantity of labour, is
greater or less than what can be brought by an
equal quantity from the greater part of other mines
of the same kind. Some coal mines, advantage-
ously situated, cannot be wrought on account of
their barrenness. The produce does not pay the
expense. They can aiibrd neither profit nor r^it.
There are some, of which the produce is barely

392 DOCTRINE OF ADAM SMITH [CHAP, XXIV.

sufficient to pay the labour, and replace, together
with its ordinary profits, the stock employed in
working them. They afford some profit to the un-
dertaker of the work, but no rent to the landlord.
They can be wrought advantageously by nobody
but the landlord, who being himself the undertaker
of the work, gets the ordinary profit of the capital
which he employs in it. Many coal mines in Scot-
land are wrought in this manner, and can be wrought
in no other. The landlord will allow nobody else
to work them without paying some rent, and no-
body can afford to pay any.

" Other coal mines in the same country, suffi-
ciently fertile, cannot be wrought on account of
their situation. A quantity of mineral sufficient to
defray the expense of working, could be brought
from the mine by the ordinary, or even less than
the ordinary quantity of labour ; but in an inland
country, thinly inhabited, and without either good
roads or water-carriage, this quantity could not be
sold." The whole principle of rent is here admi-
rably and perspicuously explained, but every word
is as applicable to land as it is to mines ; yet he
affirms that " it is otherwise in estates above ground.
The proportion, both of their produce and of their
rent, is in proportion to their absolute, and not to
their relative fertility.*' But, suppose that there
were no land which did not afford a rent ; tlien, the
amount of rent on the worst land would be in
proportion to the excess of the value of the produce

CHAP. XXIV,] CONCERNING THE RENT OT LAND. 393

above the expenditure of capital and the ordinary-
profits of stock : the same principle would govern
the rent of land of a somewhat better quality, or
more favourably situated, and, therefore, the rent
of this land would exceed the rent of that inferior
to it, by the superior advantages which it possessed ;
the same might be said of that of the third quality,
an^ so on to the very best. Is it not, then, as cer-
tain, that it is the relative fertility of the land, which
determines the portion of the produce, which shall
be paid for the rent of land, as it is that the relative
fertility of mines, determines the portion of their
produce, which shall be paid for the rent of mines ?

After Adam Smith has declared that there are
some mines which can only be worked by the own-
ers, as they will afford only sufficient to defray the
expense of working, together with the ordinary
profits of the capital employed, we should expect
that he would admit that it was these particular
mines which regulated the price of the produce
from all mines. If the old mines are insufficient to
supply the quantity of coal required, the price of
coal will rise, and will continue rising till the owner
of a new and inferior mine finds that he can obtain
the usual profits of stock by working his mine. If
his mine be tolerably fertile, the rise will not be
great before it becomes his interest so to employ
his capital ; but if it be not tolerably fertile,- it is
evident that the price must continue to rise till it
will afford him the means of paying his expenses,

394 DOCTRINE OF ADAM SMITH [CHAP. XXIV.

axid obtainii^ the ordinary profits of stock. It ap-
pears, then, that it is always the least fertile mine
which regulates the price of coal. . Adam Smith,
however, is of a different opinion: he observes,
that '< the most fertile coal mine, too, regulates the
price of coals at all the other mines in its neighbour-
hood. Both the proprietor and the undertaker of
the work find, the one that he can get a greater
rent, the other, that he can get a greater profit, by
somewhat underselling all their neighbours. Tlieir
neighbours are soon obliged to sell at the same
price, though they cannot so well afford it, and
though it always diminishes, and sometimes takes
away altogether, both their rent and their profit.
Some works are abandoned altogether ; otliers can
afibrd no rent, and can be wrought only by the
proprietor." If the demand for coal should be di-
minished, or if by pew processes the quantity should
be increased, the price would fall, and some mines
would be abandoned ; but in every case, the price
must be sufficient to pay the expenses and profit of
that mine which is worked without being charged
with rent. It is, therefore, the least fertile mine
which regulates price. Indeed, it is so stated in
anotlier place by Adam Smith himself, for he says,
" The lowest price at which coals can be sold for
any considerable time, is like that of all other com-
modities, the price which is barely sufficient to
replace, together with its ordinary profits, the stock
which must be employed in bringing them to
market. At a coal mine for which the landlord

CHAP. XXIV.3 COMCBRNING THIS RENT OF LAND. 395

can get no rent, but which he must either work
himself, or let it alone all together, the price of
coals must generally be nearly about this price."

But the same circumstance, namely, the abun-*
dance and consequent cheapness of coals, from
whatever cause it may arise, which would make
it necessary to abandon those mines on which there
was no rent, or a very moderate one, would, if
there were the same abundance, and consequent
cheapness of raw produce, render it necessary to
abandon the cultivation of diose lands for which
either no rent was paid, or a very moderate one.
If, for example, potatoes should become the general
and common food of the people, as rice is in some
countries, one fourth, or one half of the land now
in cultivation, would probably be immediately
abandoned ; for if, as Adam Smith says, " an acre
of potatoes ynVL produce six thousand weight of
solid nourishment, three time^ the quantity pro-
duced by the acre of wheat,*' there could not be
for a considerable time Mch a multiplication of
people, as to consume the quantity that might be
raided on the land before employed for the cultiva-
tion of wheat ; much land would consequently be
abandoned, and rent would fall ; and it would not
be till the population had been doubled or trebled,
that the same quantity of land could be in cultiva-
tion, and the rent paid for it as high as before.

Neither would any greater prc^ortion of the gross

396 nOCTEINK OF ADAM SMITH [CHAP. XXIV.

produce be paid to the landlord, whether it con-
sisted of potatoes, which would feed three hundred
people, or of wheat, which would feed only one
hundred ; because, though the expenses of produc-
tion would be very much diminished if the labour-
er's wages were chiefly regulated by the price of
potatoes and not by the price of wheat, and though
therefore the proportion of the whole gross produce,
after paying the labourers, would be greatly in-
creased, yet no part of that additional proportion
would go to rent, but the whole invariably to pro-
fits, — profits being at isdl times raised as -wages
fall, and lowered as wages rise. Whether wheat
or potatoes were cultivated, rent would be governed
by the same principle — it would be always equal
to the difference between Uie quantities of produce
obtained with equal capitals, eitlier on the same
land or on land of difierent quaUties ; and, there-
fore, while lands of the same quality were culti-
vated, and. there was no alteration in their relative
fertility or advantages, rent would always bear the
same proportion to the gross produce.

Adam Smith, however, maintains tliat the pro-
portion which falls to the landlord would be in-
creased by a diminished cost of production, and,
therefore, that he would receive a larger share as
well as a larger quantity, from an abundant than
from a scanty produce. " A rice field,** he says,
** produces a much greater quantity of food than
the most fertile corn field. Two crops in the year»

CHAP. XXIV.] CONCERNING THE RENT OF LAND. 397

from thirty to sixty bushels each, are said to be the
ordinary produce of an acre. Though its cultiva*
tion, therefore, requires more labour, a much greater
surphis remains -after maintaining all that labour%
In those rice countries, therefore, where rice is the
common and favourite vegetable food of the people,
and where the cultivators are chiefly maintained
with it, a greater share of this greater surplus should
belong to the landlord than in com countries.*^

Mr. Buchanan also remarks, that ** it is quite
clear, that if any other produce which the land
yielded more abundantly than corn, were to be-
come the common food of the people, the rent of
the landlord would be improved in proportion to
its greater abundance."

If potatoes were to became the common food o£
the people, there would be a long interval during
which the landlords would sufier an enormous de-
duction of rent. They would not probably receive
iiearly so much of the sustenance of man as they
now receive, while that sustenance would fall to a
third of its present value. But all manufactured
.commodities, on which a part of the landlord's
rent is expended, would suffer no other fall than
that which proceeded from the fall in the raw
material of which they were made, and which
would arise only from the greater fertility of
the land, which might then be devoted to its pro-
duction. .

398 DOCTRINE OF ADAM SMITH [^CHAP. XXIV,

Wlien, from the progress of population, land of
the same quality as before should be taken into
cultivation, the landlord would have not only the
Mune proportion of the produce as before, but that
proportion would also be of the same value as be-
fore. Rent then would be .the same as before ;
profits, however, would be much higher, because
the price of food, and consequently wages, would
be much lower. High profits are favourable to the
accumulation of capital. The demand for labour
would further increase, and landlords would be
permanently benefited by the increased demand
for land.

Indeed, the very same lands might be cultivated
much higher, when such an abundance of food
could be produced from them, and consequently
they would, in the progress of society, admit of
much higher rents, and would sustain a much
-greater population than before. This could not
fail to be highly beneficial to landlords, and is con-
sistent with the principle which this enquiry, I
think, will not fail to establish ; that all extraordi-
nary profits are in their nature but of limited dura-
tion, as the whole surplus produce of the soil, after
deducting from it only such moderate profits as are
sufficient to encourag>(e accumidationi nuiat finatty
rest with the landlord.

With so low a price of labour as su<^ an abundant
produce would cause, not only would the. lands al-

CHAP. XXIV.] CONCERNING THE RENT OF LAND. 399

ready in cultivation yield a much greater quantity
of produce, but they would admit of a great addi-
tional capital being employed on them, and a
greater value to be drawn from them, and, at the
same time, lands of a very inferior quality could
be cultivated with high profits, to the great advan-
tage of landlords, as well as to the whole class of
consumers. The machine which produced the
most important article of consumption would be
improved, and would be well paid for according as
its services were demanded. All the. advantages
would, in the first instance, be enjoyed by la-
bourers, capitalists, and consumers ; but witli the
progress of population, they would be gradually
transferred to the proprietors of the Soil.;

• • •

Independently of these improvements, in which
the community have an immediate, and the land-
lords a remote interest, jthe interest of the landlord
is always opposed to that of the consumer and ma-
nufacturer. Corn can be permanently at an ad-
vanced price, only because additional labour is
necessary to produce it ; because its cost of pro-
duction is increased. The same cause invariably
raises rent, it is tlierefore for the interest of the
landlord that the cost attending the production of
corn should be increased. This, however, is not
^e interest of the consumer ; to him it is desiraUe
that corn should be low relatively to money and
commodities, for it is always with commodities or
money that corn is purchased* Neither is it the

400

DOCTRINE OF ADAM SMITH j^CHAP. XXIV.

interest of the manufacturer that com should be at
a high price, for the high price of com will occa-
sion high wages) but will not raise the price of his
commodity. Not only, then, must more of his
commodity, or, which comes to the same tiling,
the value of more of his commodity, be given in
exchange for the com which he himself consumes,
but more must be given, or the value of more, for
wages to his workmen, for which he will receive no
remuneration. All classes, therefore, except the
landlords, will be injured by the increase in the
price of com. The dealings between the landlord
and the public are not like dealings in trade,
whereby both the seller and buyer may equally be
said to gain, but the loss is wholly on one side, and
the gain wholly on the other ; and if com could by
importation be procured cheaper, the loss in conse-
quence of not importing is far greater on one %\de^
than the gain is on the other.

Adam Smith never makes any distinction be-
tween a low value of money, and a high value of
com, and therefore infers, that the interest of the
landlord is not opposed to that of the rest of the
community. In the first case, money is low rela-
tively to all commodities^ in the other, com is
high relatively to all. In the first, com and com-
modities continue at the same relative values j in
the second, com is higher relatively to commodi-
ties as well as money.

CHAP. XXIV,] CONQpRNIKG THE RENT OF LAKD, 401

The following observation of Adam Smith is ap-
plicable to a low value of money, but it is totally
inapplicable to a high value of com. « If import-
ation (of corn) was at all times ftee, our farmers
and country gentlemen would probably, one year
with another, get less money for their com than
they do at present, when importation is at most
times in efiect prohibited j but the money which
they got would be of more value, woiUd buy more
goods of aU other kinds^ and would employ more
labour. Their real wealth, their real revenue,
therefore, would be the same as at present, though
it might be expressed by a smaller quantity of sil-
ver ; and they would neither be disabled nor dis-
couraged from cultivating com as much as they do
at present. On the contrary, as the rise in the real
value of silver, in consequence of lowering the
money price of com, lowers somewhat the money
price of all other commodities, it gives the indus-
try of the country where it takes place, some ad-
vantage in all foreign markets, and thereby tends
to encourage and increase that industry. But the
extent of the home market for corn, must be in
proportion to the general industry of the country
where it grows, or to the number of those who
produce something else, to give in exchange for
com. But in every country the home market, as
it is the nearest and most convenient, so is it like-
wise the greatest and most important market for
corn. That rise in the real value o£ silver, there-
fore, which is the effect of lowering the average

D D

402 DOCTRINE OF ADAM SMITH, &C. [CHAP. XXIV.

money price of com, tends to enlarge the greatest
and most important market for com, and thereby
to encourage, instead of discouraging, its growth.^

A high or low money price of com, arising from
the abundance and cheapness of gold and sHver, is
of no importance to the landlord, as every sort o^'
produce would be equally affected, just as Adam
Smith describes } but a relatively high price of com
is at all times greatly beneficial to the landlord ;
for firsts it gives him a greater quantity of com for
rent ; and, secondly, for every equal measure of
corn he will have a command, not only over a
greater quantity of money, but over a greats
quantity of every commodity which money can
purchase.

CHAPTER XXV

ON COLONIAL TRADE.

Adam Smith, in his observations on colonial trade,
has shewn, most satisfactorily, the advantages of a
free trade, and the injustice suffered by colonies,
in being prevented by their modier countries, from
selling their produce at the dearest market, an4
buying their manufactures and stores at the
cheapest. He has shewn, that by permitting
every x:ountry freely to exchange the produce of
its industry when and where it pleases, the best
distribution of the labour of the world will be ef-
fectedy and the greatest abundance of the neces-
saries and enjoyments of human life will be secured.

He has attempted also to shew, that • this free*-
dom of commerce, which undoubtedly promotes
the interest of the whole, promotes also that of
each particular country ; and that the narrow po-
licy adopted in the countries of Europe respecting
their colonies, is not less injurious to the mother
countries themselves, than to the colonies whose
interests are sacrificed*

" The monopoly of the colony trade,'* he says,
•* like all the other mean and malignant expedient^
of the mercantile system, depresses the industry of

V D 2

^ * i

i04 OK COLONIAL TRADE. [[CHAP« XXY.

all Other countries, but chiefly that of the colonies,
without, in the least, increasing, but, on the con-^
traiy, diminishing, that of the country in whose
favour it is established/'

This part of his subject, however, is not treated
in so clear and convincing a manner as that in
which he shews the injustice of this system to-
wards the colony*.

It may, I think, be doubted whether a mother
country may not sometimes be benefited by the
restraints to which she subjects her colonial pos-
sessions. Who can doubt, for example, that if
England were the colony of France, the latter
country would be benefited by a heavy bounty
paid by England on the exportation of com, cloth,
or any other commodities? In examining' the
question of bounties, on the supposition of com
being at 4/. per quarter in this country, we saw,
that witlra bounty of lO^. per quarter, on exporta-
tion in England, com would have been reduced to
pL \0s. in France* Now, if com had previously
been at 3L 15s. per quarter in France, the French
ccmmimers would have been benefited by 5s. per
quarter on all imported com ; if the natural price
of com in France were before 4/!i, they would have
gained the whole bounty of 10^. per quarter.
France would thus be benefited by the loss sus-
tained by England : she would not gain a part only
of what England lost, but the whole,.

•i «

CHAJP. XXVJ OM COLONUi. TRADE. 405

It may, however, be said, that a bounty on ex-
portation is a measure of internal policy, and could
not easily be imposed by the mother country.

If it would suit the interests of Jamaica and
Holland to make an exchange of the commodities
which they respectively produce, without the in-
tervention of England, it is quite certain, that by
their being prevented from so doing, the interests
of Holland and Jamaica would suiSer ; but if Ja-
maica is obliged to send her goods to England, and
there exchange them for Dutch goods, an English
capital, or English agency, will be employed in a
trade in which it would not otherwise be engaged.
It is allured thither by a bounty, not paid by Eng-
land, but by Holland and Jamaica,

That the loss sustained, through a disadvantage-
ous distribution of labour in two countries, may be
beneficial to one of them, while the other is made
to suffer more than the loss actually belonging to
such a distribution, has been stated by Adam Smith
himself; which, if true, will at once prove that a
measure, which may be greatly hurtful to a colony^
may be partially beneficial to the mother country.

Speaking of treaties of commerce, he wyn^
<* When a nation binds itself by treaty, either to
permit the entry of certain goods from one foreign
country which it prohibits from all others, or to
exempt the goods of one country from duti0j9_ tQ

406 /ON COLONIAL TRAPE. [CHAF. XXV

which it subjects those of all others, the country,
c>r at least the merchants and manufacturers of the
country, whose qonimerce is so favoured, must ne-
cessarily derive great advantage from the treaty.
Those merchants and manufacturers enjoy a sort
of monopoly in the country, which is so indulgent
to them. That country becomies a • market, both
more extensive and more advantageous for their
goods } more extensive, because the goods of
other nations, being either excluded of subjected '
to heavier duties, it takes off a greater quantity of
them ; more advantageous, because the merchants
^ the favoured country, enjojdng a sort of mono-
poly there, will often sell their goods for a better
price than if exposed to the free competition of all
other nations/*

^ Let the two nations, between which the commer-
eial treaty is made, be the mother country and her
colony, and Adam Smith, it is evident, admits,
that a mother country may be benefited by oppress-
ing her colony. It may, however, be again re-
marked, that unless the monopoly of the foreign
Qiarket be in the hands of an exclusive company,
no more will be paid for commo(Hties by for dgn
purchasers than by home purchasers ; the price
which they will both pay will not differ greatly
from their natural price in the 'country where they
ire produced* England, for example, will, under
ordinaiy circumstances, always be able to buy
French goods, at the natural price of those goods

CHAP. .XXV.3 ON COLONIAL TRADEi ft07

in France, and France would have an equal privi-
lege of buying English goods at their natural price
in England. But at these prices, goods would be
bought without a treaty. Of what advantage or
disadvantage then is the treaty to either party?

The disadvantage of the treaty to the imparting
country would be this : it would bind her topju*-
chase a commodity, from England for example, at
the natural price of that commodity in ^ngland^
when she might perhaps have bought it at the
much lower natural price of some other country.
It occasions then a disadvantageous distribution of
the general capital, which falls chiefly on the couQ*
try bound by its treaty to buy in the least produc*
tive maf ket ; but it gives no advantage to the sel-
ler on account of any supposed monopoly, for he
is prevented by the competition of his own country-
men from selling his goods above their natural
price ; at which he would sell them, whether he
exported them to France, Spain, or the West Im
dies, or sold them for home consumption.

In what then does the advantage of the stipu-
lation in the treaty consist? It consists in this:
these particular goods could not have been made
in England for exportation, but for the privilege
which she alone had of serving this particular
market; for the competition of that , country,
where the natural price was lower, would have
deprived her of all chance 6f selling those com^

408 ON COLONIAL TEADE. [CHAF. XXV.

modities- This, however, would have been of
litde importance, if England were quite secure
that she could sell to the same amount any other
goods which she might fabricate, either in the
French market, or with equal advantage in any
other. The object which England ha6 in view, is,
for example, to buy a quantity of French wines of
the value of 5000/. — she desires then to sell goods
somewhere by which she may get 5000L for this
purpose. If France gives her a monopoly of the
cloth market, she will readily export cloth for this
purpose ; but if the trade is free, the competition
of other countries may prevent the natural price
of cloth in England from being sufficiently low to
enable her to get 5000/. by the sale of cloth, and
to obtain the usual profits by such an emplojnnent
of her stock. The industry of England must be
employed, then, on some other commodity ; but
there may be none of her productions which, at
the existing value of money, she can afford to sdl
at the natural price of other countries. What is
the consequence? The wine drinkers of England,
are still willing to give 5000/. for their wine, and
consequently 5000/L in money is exported to
France for that purpose. By this exportation of
money its value is raised in England, and lowered
in other countries ; and with it the naturalprice of
all commodities produced by British industry is
ateo lowered. The advance in the value of money
is the same thing as the decline in the price of
coiimodities. . To obtain 5000/., British commodi*

CBAP. XXT.j OK COLONIAL TRABfi, 409

ties may now be exported ; for at their reduced
natural price they may now enter into competition
with the goods of other countries. More goods
are sold, however, at the low prices to obtain the
5000/. required, which, when obtained, wiU not
procure the same quantity of wine; because, whilst
the diminuti(Hi of money in England has lowered
the natural price of goods there, the increase of
money in France has raised the natural price of
goods and wine in France. Less wine, then, will
be imported into England, in exchange for its
commodities, when the trade is perfectly free,
than when she is peculiarly favoured by commer-
cial treaties. The rate of profits, however, wUl
not have varied ; money will have altered in rela«
tive value in the two countries, and the advantage
gained by France will be the obtaining a greater
quantity of English, in exchange for a given quan«
tity of French, goods, while the loss sustained by
England will consist in obtaining a smaller quan*
tity of French goods in exchange for a given quan«
tity of those of England.

Foreign trade, then, whether fettered, encou-
raged, or free, will always continue, whatever
may be the comparative difficulty of production in
different countries ; but it can only be regulated
by altering the natural price, not the natural va-
lue, at which commodities can be produced in those
countries, and that is efiected by altering the dis-
tribution of the precious metals. This explanation

410 O^ COLONIAL TRADE. [CHAP. XXT.

CQnfirms the opinion which I haye elsewhere given,
^at there is not a tax, a bounty, or a prohibition,
on the importation or exportation of cammodities,
which does not occasion a difierent distribution of
the precious metals, and which does not, therefore,
every where alter both the natural and the market
prio^ofcommodiae..

It is evident, then, that the trade with a colony
qiay be so regulated, that it shall at the same time
be less beneficial to the colony, and more beneficial
to the mother country, than a perfectly free trade.
As it is disaidvantageous to a single consumer to be
ifestricted in his dealings to one particular shop, sio
is it disadvantageous for a nation of consumers to
be obliged to purchase of one particuliir country;
If the shop or the country afforded the goods re-
quired the cheapest, they would be secure of selling
them without any such exclusive privilege ; and if
they did not sell cheaper, the general interest would
require that they should not be encouraged to con*
tinue a trade which they could not carry on at an
equal advantage with others. The shop, or the sell-
ing country, might lose by the change oi employ-
ments,, but the general benefit is never so fully se*
f:ured, as by the most productive distribution of the
general capital ; that is to say, by an universally free
trade.

. An increase in the cost of production of a com«
modity, if it be an article of the first neces«ity,will

CHAP. XXV.] O^ COLONIAL TKABE. 411

not necessarily. diminish its comumption; for al-
though the general power of the purchasers to
consume, is diminished by the rise of any one coni-
modily, yet they may relinquish the consumption
of some other commodity whose cost of production
has not risen. In that case, the quantity supplied
and the quantity demanded, will be the same as
before; the cost of production only will have in-
creased, and yet the price will rise, and must rise,
to place the profits of the producer of the enhanced
commodity on a level with the profits derived from
other trades.

' M. Say acknowledges that the cost of production
is the foundation of price, and yet in various parts
of his book he maintains that price is regulated by
the proportion which demand bears to supply. The
real and ultimate regulator of the relative value of
Wy two commodities, is the cost of their produce
tion, and not the respective quantities which may
be produced, nor the competition amongst the
purchasers.

- According to Adam Smith, the colony trade, by
being one in which British capital only cim be em-
ployed, has raised the rate of profits of all other
trades; and as, in his opinion, high profits, as ^ell
as high wages, raise the prices of commodities, the
monopoly of the colony trade has been, he thinks,
injurious to the moijier country; as it has dimi*
lushed her power of selling manufactured commo^

41 S OK COU>KIAL T&ADE. [CHAF. XXT.

dities as cheap as other countries. He says, that
" in consequence of the monopoly, the increase of
the colony trade has not so much occasioned an
addition to the trade which Great Britain had be-
fore, as a total change in its direction. Secondly,
this monopoly has necessarily contibuted to keep up
the rate of profit in all the different branches of
British trade, higher than it naturally would have
been, had all nations been allowed a free trade to
the British colonies." ** But whatever raises in
any country the ordinary rate of profit hi^er than
it otherwise would be, necessarily subjects that
country both to an absolute, and to a relative dis-
advantage in every branch of trade of which she
has not the monopoly. It subjects her to an ab*
solute disadvantage, because in such branches of
trade, her merchants cannot get this greater profit
without selling dearer than they otherwise wotdd
do, both the goods of foreign countries which they
import into their own, and the goods of their own
country which they export to foreign countries.
Their own country must both buy dearer and
sell dearer; must both buy less and sell less; must
both enjoy less and produce less than she other,
wise would do."

■

, ** Our merchants frequently complain of the hijgh
wages of British labour as the cause of their manu«
factures being undersold in foreign markets ; but
they are silent about the high profits of stock.
They complain of the extravagant gain of other

CHAP, XXV.J OM COLONIAL THADE, 419

people, but they say nothing of their own. The
high profits of British stock, however, may contri-
bute towards raising the price of British manufac-
ture in many cases as much, and in some perhaps
more, than the high wages of British labour/'

I allow that the monopoly of the colony trade
will change, and often prejudicially, the direction
of capital; but from what I have already said on
the subject of profits, it will be seen that any change
from one foreign trade to another, or from home
to foreign trade, cannot, in my opinion, affect the
rate of profits. The injury suffered will be what I
have just described; there will be a worse distribu-
tion of the general capital and industry, and, there-
fore, less will be produced. The natural price of
commodities will be raised, and, therefore, though
the consumer will be able to purchase to the same
money value, he will obtain a less quantity of com-
modities* It will be seen too, that if it even had
the effect of raising profits, it would not occasion
the least alteration in prices; prices being regu-
lated neither by wages nor profits.

And does not Adam Smith agree in this opinion,
when he says, that ** the prices of commodities, or
the value of gold and silver as compared with com-
modities, depends upon the proportion between the
quantity qf labour which is necessary in order to
bring a certain * quantity of gold and silver to

OH COLONIAL TEADE* QCHAT. XXY.

market, and that which is necessaiy to bring thither
a certain quantityofany.other sort of goods?'' That
quantity will not be afiected, whether profits, be
high or low, or wages low or high. How then can
prices be raised by high profits ?

CHAPTER XXVI.

ON GROSS AND NET REVENUE.

Adam Smith constantly magnifies the advantages
which a country derives from a large gross, rather
than a large net income* *^ In propoition as a
greater sharer of the capital of a country is em*
ployed in agriculture,*' he says, " the greater will
be the quantity of productive labour which it puts
into motion within the country ; as will likewise
be th^ value which its employment adds to the an«
nual produce of the land and labour of the society.
After agriculture^ the capital employed in manu^
factures puts into motion the greatest quantity of
procUictive labour, and adds the greatest value to
the annual produce* That which is employed in
the trade of exportation has the least effect of any
of the three •/'

•

* M. Say is of the same opinion with Adam Smith : " The
most productive employment of capital, for the country in
general, after that on the land, is that of manufactures and of
home trade ; because it puts in activity an industry of which tlie
profits are gained in the country, while those capitals which are
employed in foreign commerce, make the industry and lands of
all countries to be productive, without distinction.

" The emplo3rment of capital the least favourable to a nation^
is that of carrying the produce of one foreign country to an-
other.*' ^ay, vol. ii. p'.120.

416 0^J3bB0$S. AKD K£T RSTKNOfi* [[CHAP. XXYI.

Granting, for a moment, that this were true;
what would be the advantage resulting to a coun-
try from the employment of a, great quantity of
productive labour, if, whether it employed that
quantity or a smaller, its net rent and profits
together would be the same. The whole produce
of the land and labour of every country is divided
into three portions : of these, one portion is de-
voted to wages, another to profits, and the other to
rent. It is from the two last portions only, that
any deductions can be made for taxes, or for
savings ; the former, if moderate, constituting
always the necessary expenses of production^.
To an individual with a capital of 20,000/., whose
profits were 2000/. per annum, it would be a matter
quite indifferent whether his capital would employ
a hundred or a thousand men, whether the axn-
modity produced, sold for 10,000/., or for S0,000l^
provided, in all cases, his profits were not dimi-
nished below 2000/. Is not . the real interest of
the nation similar ? Provided its net real income,
its rent and profits be the same, it is of no impor-
tance whether the nation consists of ten or of
twelve millions of inhabitants. Its power of sup-
porting fleets and armies, and all species of unpro-

* Perhaps this is expressed too strongly, as more is ge^enllj
allotted to the labourer under the name of wages, than the abso-
lutely necessary expenses of production. In that case a part
of the net produce of the country is received by the labourer,
and may be saved or expended by him ; or it may enable him to
contribute to the defence of the country.

CRAF. XXVI.] OK GBOS8 HJSfB SEX BKr£NUB« 417

ductive labour, must be in proportion to its net,
and iiot in propcxtion to its gross income. If five
millions of men could produce as much food and
dotting fts was necessary ibr ten mUHons, food
and clothing for five millions would be the net
revenue. Would it be of any advantage to the
country, that to produce this same net revenue,
seven millicms of men should be required, that is
to say, that seven millions should be employed to
produce food and clothing sufficient for twdve
millions ? Ttie food and clothing of five million*
would be still the net revenue. The employing a
greater number of men would enable us neither to
add a man to our army and navy, nor to contrilnite

one guinea more in taxes.

i- •••
It is not on the grounds of any supposed advari'^.,. //.
tage accruing from a large population, or of the *
happiness that may be enji^ed by a greater number
of human beings, that Adam Smith supports the*
preference of that employment of capital, which
gives motion to the greatest quantity of industry,
but expressly on the ground of its increasing the
power of the country * for he says, that " the riches,
and, so far as power depends upon riches, the
power of every country must always be in proper*

* M. Say has totally mifltindemtood roe in soppoBing that I
have coBBfdered as nothtngy the happiness of so many human '
beings. I think the text sufficiently shews that I was Gonfining
my retnarks to the particular grounds on which Adam Smith had
rested it«

E E

416 OH OBDat AND VET BEVENUB. [CHAP^ KXTU

tion to the value of itsamuial produce, the fiind
from which all taxes must ultimately be paid.'' It
must however be obvious, that the power of paying
taxes, is in proportion to the net, and not in pro-
portion to the gross, revenue.

In the distribution of employments amoQg9t aU
countries, the capital of poorer nations will be na-
turally employed in those pursuits, wherein a great
quantity of labour is supported at home, because
in such countries the food and necessaries for an
increasing population can be most easily procured.
In rich countries, on the contrary, where food is
dear, t^apital will naturally flow, when trade is. fhse,
into those occupations wherein the least quantity
of labour is required to be maintained at home :
such as the carrying trade, the distant fot^^;n
trade, and trades where expensive machinery is
required ; to trades where profits are in propc^tiMi
to the capital, and not in proportion to the quan-
tity of labour employed *.

^ <* It is fortunate that the natural course of things 4m«
capital, not to those employments where the grcFatest profits are
made, but to those where the operation is raost profitable to
the community," — ^Vol. ii. p. 122. M. Say has not told us what
thoke employments are, which, while they are the moat profit-
able to the individual, are not the most profitable to the Slate.
If countries with limited capitals, but with abundance of fertile
land, do not early engage in foreign trade, the reason i^ because
it is less profitable to individuals, and therefore dso less profit-
able to the Sute.

CHAP. XXYI.] ON OftOfld 4K]> NfiT> RSTEKinS% 419

Although I admit, that from the nature of rent,
a ^ren capital employed in agriculture, oix any but
the land list cultivated, puts in motion a greater
quantity of labour than an equal capital employed
in manufactures and trade, yet I cannot admit that
there is any di£^ence in the quantity <^ labour
employed by a capital engaged in the home trade,
and an equal capital engaged in the foreign trade.

<< The capital which sends Scots manufactures
to London, and brings back English com and
manufactures to Edinburgh,'' says Adam Smith,
•* necessarily replaces, by every such operation^
two British capitals which had both been employed
in the agriculture or manufactures of Great Britain.

■

•

*r ** The capita employed in purchasiikg foreign

goods for home consumption, whien this purchase
is made with the produce of domestic industry,
replaces, too, by every such operation, two distinct
capitals ; but one of them only is employed in sup-
parting domestic industry. The capital which
sends British goods to Portugal, and brings back
Portuguese goods to Great Britain, replaces, by
every such operation, only one British capital, the
other is a Portuguese one. Though the returns,
therefore, of the foreign trade of consumption
should be as quick as the home trade, the capital
employed in it will give but one half the encourage-
ment to the industry or productive labour of the
country."

E E 2

im t^ 99^ AND KET BEVElf U£« [CUAW* XXIFU

Thb argument ai^pean to me to be faUadous ;
for thou^ two capitals, one Portuguese and one
English, be employed^ as Dr. Smith supposes, still
a capital will be employed in the foreign trade^
double of what wpuld be emfdoyed, in the home
trade. Suppose that Scotland employs a capital
of a thousand pounds in making linen, which she
exchanges for the produce of a similar capital em<^
ployed in making silks in England, two thousand
pounds, and a proportional quantity of labour will be
employed by the two countries* Suppose now, that
Jjgogland discovers, that she can import mate linen
fiom Germany, for thi^ silks which^ she befcM« ex*
ported to Scotland, and that Scotland discovers that
she can obtain more silks from France in return for
her linen, than she before obtained from England,
-— wiU not England and Scotland immediately
cease trading with each other, and will not the home
trade of consumption be changed for a f ordgn trade
of consumption? But although two additional capi-
tals will enter into this trade, the capital of Crermany
and that of France, will not the same apiount of
Scotch and of English capital continue to be em«
ployed, and will it not give motion to the same
quantity of industry as when it was engaged in the
home trade?

CHAPTER XXVIL

ON CURRENCY AND BANKS.

So much has akeady been written on currency, that
of those who give their attention to such subjects,
none but the prejudiced are ignorant of its true
principles. I shall, therefore, take only a brief
survey of some of the general laws which regulate
its quantity and value.

Gold and silver, like all other commodities, are
valuable only in proportion to the quantity of labour
necessary to produce them, and bring them to
ifiarket. Gold is about fifteen times dearer thai!
silver, not because there is a greater demand for it,
nor because the supply of silver is fifteen times
^eater than that of gold, but solely because fifteen
times the quantity of labour is necessary to pro^
cure a given quantity of it.

The quantity of money that can be employed in
a country must depend on its value : if gold alone
^trere employed for the circulation of commodities^
a quantity would be required, one fifteenth only of
irhst would be necessary, if diver Were made use
of £nr the Ame |mrpose.

4f2 ON CURRBMCT AND BANKS. [CHAP. XXVII.

A circulation can never be so abundant as to
overflow ; for by diminishing its value, in the same
proportion you will increase its quantity, and by
increasing its value, diminish its quantity.

While the State coins money, and charges no
seignorage, money will be of the same value as any
other piece of the same metal of equal weight and
fineness ; but if the State charges a seignorage for
coinage, the coined piece of money will generally
exceed the value of the uncoined piece of metal
by the whole seignorage charged, because it will
require a greater quantity of labour, or, which* is
the same thing, the value of the produce of a
greater quantity of labour, to procure it.

While the State alone coins, there can be no limit
to this charge of seignorage; for bylimkiog' die
quantity of coin, it can be raised to any conc^V'r
able value. "

It is on this principle that paper money circu-
lates : the whole charge for paper money may be
considered as seignorage. Though it has no intrin-
sic value, yet, by limiting its quantity, its value in
exchange is as great as an equal denominatioii of
coin, or of bullion in that coin. On the same prin-
ciple, too, namely, by a limitation of its quantity, a
debased coin would circulate at the value it should
bear, if it were of the l^al- weight and fineness, and
not at the value of the quimtity of metal which it

CHAP. XXVII.]] ON CURREKCT AND BANKfr» 409

actually contained. In the history of the
coinage, we find, accordingly, that the currency was
never depreciated in the 'same proportion that it
waf debased ; the reason of which was, that it
never was increased in quantity^ in proportion to its
diminished intrinsic value ^.
•

Tiiere is no point more important in issuing
paper money, than to be fully impressed with the
effects which follow from the principle of limitation
of quantity. It will scarcely be believed fifty years
hence, that Bank directors and ministers gravely
contended in our times, both in parliament, and
before committees of parliament, that the issues
of notes by the Bank of England, unchecked by
any power in the holders of such notes, to demand
in exchange either specie, or bullion, had not, nor
could have any eflfect on the prices of commddities^
bullion, or foreign exchanges.

After the establishment of Banks, the State has
not the sole power of coining or issuing money.
The cirfirency may as eflectually be increased by
paper as by coin ; so that if a State were to debase ^
its money, and limit its quantity, it could not sup- .
port its value, because the Banks would have an
equal power of adding to the whole quantity of
circulation.

* - »

• Whatever I say of gold coin, is equally applicable to silver
coin ; but it is not necessary id mention both on every occasiciv

4M .ON CURilfiNCT AND BAKKfi. [[CHAP« XXYtL

; On these princiidea, it will be seen that it is not
uecessuy that paper money should be payable in
fll^cie to secure its value ; it is. only necessary.that
itt quimtity should be r^^ated according to the
value of the metal which is declared to be the stan*
dard. If the standard were gold of agivCTi we^t
and fineness, paper might be increased with every
&11 m the value of gold» or, which is the same
thing in its eflfects, with every rise in the price of
goods.

'' By issuing too great a quantity of paper/^
says Dr. Smith, <* of which the excess was continu-
ally returning, in order to be exdianged for gdd
and silver, die Bank of England was, for many
years together, obliged to coin gold to the extent
of between eight hundred thousand pounds and a
million a-year, or at an average^ about e^t hun-
dred and fifty thousand pounds. For this great
coinage, the Bank, in consequence of the worn
and degraded state into whidi the g<dd coin had
fallen a few years ago, was frequently obliged to
purchase bullion, at the high price of four pouncb
an ounce, which it soon after issued in coin at SI.
17^* lO^d. an ounce, losing in this manner between
two and a half and three per cent, upon the coiia^
of so veiy large a sum. Though the Bank, tfaeie*
fore, paid no seignorage, though the Goveniment
was properly at the expense of the coinage, this
liberality of Government did not prevent altogether
the expense of the Bank.''

CllAP^ XXVU*3 ON CUBRXKCT AND BAKK8* 4A5

On the principle above stated, it appears to tne
iBOst dear, that by not re-issuing the paper thus
brought in, the value of the whole currency, of
the degraded as well as the new gold coin, would
have been raised, when all demands on the Bank
would have ceased.

Mr. Buchanan, however, is not of this opinion,
for he says, '' that the great expense to which the
iBank was at this time exposed, was occa^oned,
not, as Dr. ' Smith seems to imagine, by any im-
prudent issue of paper, but by the debased state
of the ciu'rency, and the consequent high price of
bullion. : The Bank, it will be observed, having
no other way of procuring guineas but by sending
bullion to the Mint to be coined, was always forced
to issue new coined guineas, in exchange for its
returned notes; and when the currency was gene-
rally deficient in weight, and the price of bullion
high in proportion, it became profitable to draw
these heavy guineas from the Bank in exchange for
its paper ; to convert them into bullion, and to sell
them with a profit for Bank paper, to be again re-
turned to the Bank for a new supply of guineas,
which were agaili melted and sold. To this drain
of specie, the Bank must always be exposed while
the currency is deficient in weight, as both an easy
and a certain profit then arises from the constant
interchange of paper for specie. It may be re-
marked, however, that to whatever inconvenience
and expense the Bank was then exposed by the

496 ON CUERSKCY AHX> BAKK& [^CHAF. XZTII.

drain of ks specie, it never i¥as knagined neces-
sary to rescind the obligation to pay money for its
notes/'

Mr: Buchanan evidaatly thinks that the whole
currency must, necessarily, be brought down to the
level of the value of the debased pieces; but, surely,
by a diminution of the quantity of the currency,
the whole that remains can be elevated to the value
of the best pieces.

Dr. Smith appears to have forgotten his own
principle, in his argument on colony currency. In-
stead of ascribing the depreciation of that paper to
its too great abundance, he asks whether, allowing
the colony security to be perfectly good, a hundred
pounds, payable fifteen years hence, would be
equally valuable with a hundred pounds to be
paid immediately ? I answer yes, if it be not too
abundant^

Experience, however, sliews, that neither a State
nor a Bank ever have had the imrestricted power
of issuing paper money, without abusing that power:
in all States, therefore, the issue of paper money
ought to be under some check and controul; and
none seems so proper for that piupose, as that of
subjecting the issuers of paper money to the obli*
gation of paying their notes, either in gold coin or
bullion.

CHAP. XXVII.3 ON CURRENCY AND 3AKKS* 4^7

[" To secure the public • against any other va-
riations in the value of currency than those to
which the standard itself is subject, and, at the
same time, to carry on the circulation with a me*
dium the least expensive, is to attain the most per-
fect state to which a currency can be brought, and
we should possess all these advantages by subject*
ing the Bank to the delivery of uncoined gold or
silver at the Mint standard and price, in exchange
for their notes, instead of the delivery of guineas ;
by which means pi^er would never fall below the
value of bullion, without being followed by a reduc«>
tion of its quantity. To prevent the rise of paper
above the value of bullion, the Bank should be also
obliged to give their paper in exchange for standard
gold at the price of 9L 17 s^ per ounce* Not to give
too much trouble to the Bank, the quantity of gold
to be demanded in exchange for paper at the Mint
price of SL 175. lO^tL^ or the quantity to be sold
to the Bank at SL 17^m should never be less than
twenty ounces. In other words, the Bank should
be obliged to purchase any quantity of gold that
was offered them, not less than twenty ounces, at
3L 17s A per ounce, and to sell any quantity that

* This, and the following paragrapl^, to the close of Uie
bracket, p. 432, is extracted from a Pamphlet entitled " ^o«
posals for an Economical and Seciuc^ Currency," published by
the author in the year 1816.

t .The price of 3/. lis. here mentioned, is, of course, an arbi-
trary price. There might be good reason, perhapSi for fixing it

eilhcr

|>38 <m cuiiiiEKcT Anb bakks. [[cIiap. xxni.

might be demanded at 9L 17s. 10|d While tliej
have the power of regulating the quantity of their
pi^r, there is no possible inconvenience that could
iwuh to them fix>m Buch a regulation.

♦• The most perfect liberty should be given, at
^e same time to export or import every discription
of bullion. Tliese transacticms in bullion would
ble very few in number, if the Bank regulated their
loans and issues of paper by the criterion which I
have so oftai mentioned^ namely, the price of
standard bullion, without attending to the absolute
quantity of paper in circulation.

*< The db}6ct which I have in view would be in
a great measure attained, if the Bank were obliged
to deUver uncoined bullion, in exdiange for their
notes, at the Mint price and standard; though they
were not under the necessity oi purchasing any
quantity of bullion oflered them at the prices to
be fixed, particularly if the Mint were to continue
open to the public for the coinage of money : for
that regulation is merely suggested, to prevent the

either a little above, or a little below. In naming 3/. I7<« I widi
only to elucidate the principle. The price ongfat to i>eso fixed
a* to make it the interest of the seller of gold rather to sell It lo
the Bank, than to carry it ^ the Mint to be coined.

The same remark applies to the specified quantity of twenty
ounces. There nA^i be good reason for making it ten or
thirty*

CHAP. XXyn«]] OK CURBEKCT AN]> BAKK8« 4S9

value of money from varying from the value of
bullion more than the trifling difference between
the prices at which the Bank shoiild buy and sell^
and which would be an approximation to that urn*
fixrmity in its valuei which is acknowledged to be
so desirable. «

y If the Bank capnciously limited the quantity
of their paper, they would raise its value; and gold
might appear to fall below the Hmits at which ,1
propose the Bank should purchase* Gold, in that
case, might be carried to the Mint, and the money
returned from thence, being added to the circula*
ti<m, would have the effect of loweriag its value,
and making it again conform to the standard; but
it would neither be done so safely, so economically,
nor 80 expeditiously, as by the means which I have
proposed; against which the Bank can have no ob-
jection to offer, as it is for their interest to furnish
the circulation with paper, rather than oblige others
to furnish it with coin.

'^ Under such a system, and with a currency so
regulated, the Bank woiild never be liable to any
embarrassments whatever, excepting on those ex^
traordinary occasions, when a general panic seizes
the country, and when every one is desirous of
possessing the precious metab as the most conve-
nient mode of realizing or concealing his property.
Against such panics. Banks have no security, on
onjf system f from their very nature they are subject

^ V

430 OH CURRENCY AKD BANKS. (^CHAt*. XXVH.

to them, as at no time can there be in a Bank, or in
a country, so much specie or bullion as the monied
individuals of such country have a right to demand.
Should every man withdraw his balance from his
banker on the same day, many times the quantity
of Bank notes now in circulation would be insuffi-
cient to answer such a demand. A panic of this
kind was the cause of the' crisis in 1797; and not,
as has been supposed, tlie large advances which the
Bank had then made to Government. Neither the
Bank nor Government were at that time to blame;
it was the contagion of the unfounded fears of the
timid part of the community, which occa^oned the
run on the Bank, and it would equally have taken
place if they had not made any advances to Govern-
ment, and had possessed twice their present capital.
If the Bank had continued paying in cash, probably
the panic would have subsided before their coin liad
been exhausted.

" With the known opinion of the Bank diiec-
tors, as to the rule for issuing paper money, they
may be said to have exercised their powers with-
out any great indiscretion. It is evident that they
have followed their own principle with extreme
caution. In the present state of the law, they have
the power, without any control whatever, of increas-
ing or reducing the circulation in any degree they
may think proper: a power which should neither be
intrusted to the State itself, nor to anybody in it;
as tliere can be no seciiritv for the unifonnitv in the

CHAP, XXVII*}: ON CUREENCT AND BANKS, 431

value of the currency, when- its augmentation or
diminution depends solely on the will of the issuers.
That the Bank have the power of reducing the
circulation to the very narrowest limits wiU not be
denied, even by those who agree in opinion with
the directors, that they have not the power of add-
ing indefinitely to its quantity. Though I am fully
assured, that it is both against the interest and the
wish of the Bank to exercise this power to tlie de-
triment of the public, yet, when I contemplate the
evil consequences which might ensue from a sud-
den and great reduction of the circulation, as well
as from a great addition to it, I cannot but depre-
cate the facility with which the State has armed the
Bank with so formidable a. prerogative.

" The inconvenience to which coiintry banks
were subjected before the restriction on cash pay-
ments, must, at times, have been very great. At all
periods of alarm, or of expected alarm, they must
have been under the necessity of providing them-
selves with guineas, that they ' might be prepared
for every exigency which might occur. ' Guineas,
on these occasions, were obtained at the Bank in
exchange for the larger notes, and were conveyed
by some confidential agent, at expense and risk, to
the country bank. After performing the offices to
which they were destined, they found their way
again to London, and in all probability were again
lodged in the Bank, provided they had not suffer-
ed such a loss of weight, as to reduce them below
the legal standard.

4St osr euERBKCT akd bawks. £qmat. xxvn.

*' If the plan now proposed, of paying Bank
notes in buDiony be adopted, it would be necessary
either to extend the same privil^e to countiy
banks, or to make Bank notes, a l^al tender, in
which latter case, there would be no alteration in
the law respecting country banks, as they would be
required, precisely as they now are, to pay their
notes, when demanded, in Bank of England notes.

** The saving whidi would take place, from not
submitting the guineas to the loss of weight, from
the friction which they must undergo in their re-
peated journeys, as well as of the expences of
conveyance, would be considerable ; but by &r the
greatest advantage would result from the penna^
nent supply of the country, as well as of the Lon-
don drculatioo, aa fi»r as the amaUer payments
are concerned, being provided dn the veiy cheap
medium, paper, instead of the very valuable me-
dium, gold i thereby enabling the country to derive
slU the profit which may be detained by the pro-
ductive employment of a capital to that amount.
We should surely not be justified in rgecting so
decided a benefit, unless some specific inconve^
nience could be pointed out as likely to follow from '
adopting the cheaper medium/'}

A curreaicy is in its most perfect state when it '
consists wholly of paper money, but of paper money
of an equal value with the gold which it pro&eses
to represent The use of paper instead of gold,
substitutes the cheapest in place of the most ex-

CHAP. XXVII.^ ON CURRGNCY.A^m BAXKS. ISS

pensive medium, and enables the country, without
loss to any individual, to exchange all the gold
which it before used for this purpose, for raw ma-
terials, utensils, and food; by the use of which, both
its wealth and its enjoyments are increased.

In.a national point of view, it is of no importance
whether the issuers of this well regulated paper
money be .the Government or a Bank, it will, on the
whole, be equally productive of riches,' whefiier it
be issued by one or by the other ; but it is not so
with respect to the interest of individuals. In a
.country where the market rate of interest is 7 per
cent, and where the State requires for a particular
expense 70,000/. per annum, it is a question of im-
portance to the individuals of that country, whether
they must be taxed to pay this 70,000/. per annum,
or whether they could raise it without taxes. Sup-
pose that a million of money should be required to
fit out an expedition. If the State issued a million
of x>i^er, and displaced a million of coin^ the ex-
pedition would be fitted out without any charge to
the .people ; but if a Bank issued a million of paper,
and lent it to Government at 7 per cent., thereby
displacing a milHon of coin, the country would be
charged with a continual tax of 70,000/. per an-
num: the people would pay the tax, the Bank would
. receive it, »nd the society would in either case be
as wealthy as before ; the ej^pedition would hf^^
been really fitted out by, the improvement of our

F F

434 OH CUBISNCT AHm B417K8. [CHAP, XXVn*

fyatem, by renderihg capital of the value of a
miltioB productive in the form of commoditieB, in-
stead of letting it remain unproductive in the form
of coin } but the advantage would always be in fa-
vour of the issuers of paper ; and as the State re-
presents the people, the people would have saved
thf tax, if they, and not the Bank, had issued this
million.

I have already observed, that if there were per-
fect security that the power of issuing paper money
would not be abused, it would be of no importance
with respect to the riches of the country cdlec-
tivdy* by whom it was issued j and I have now
abewn that the public would have a direct interest
that the issuers should be the State, and not a com-
pany of merchants or bankers. The danger, how-
w&f is» that this power would be more likely to be

abused, if in the hands of Government, than if in

•

the hands of a banking company, A company
would* it is said, be more under the contrcd of law,
apd although it might be their interest to extend
tibcir issues beyond the bounds of discretion, they
would be limited and checked by the power wlndi
incfividuals would have of calling for bulUon or
qKcit« It is argued that the same chedc would
nafc be long respected^ if Governmeiit had the
privil^^ of issuing money j that they would be too
apt to consider present convenience, rather than
future security, and might, therefore, on the alleged

CHAP. XXVII.] ON CURREI^CY AND BANKS. 4d&

grounds of expediency, be. too much inclined to re-
move the checks, by which the .amount of their
issues was controlled.

Under an arbitrary Government, this objection
would have great force; but, in a free country, with
an enlightened legislature, the power of issuing
paper money, under the requisite checks of con- •
vertibility at the Mrill of the holder, might be safely
lodged in the hands of commissioners appointed
for that special purpose, and they might be mad^
totally independent of the control of ministers.

The sinking fund is managed by commissioners,
responsible only to parliament, and the investment
of the money entrusted to their charge, proceeds
with the utmost regularity ; what reason can there
be to doubt that the issues of paper money might
be regulated with equal fidelity, if placed under
similar management?

It may be said, that although the advantage ac-
cruing to the State, and, therefore, to the public,
from issuing paper money, is sufficiently manifest,
as it would exchange a portion of the national
debt, on which interest is paid by the public, into
a debt bearing no interest ; yet it would be disad-
vantageous to commerce, as it would preclude the
merchants from borrowing money, and getting
their bills discounted, the method in which Bank
paper is partly issued.

FF «

486 ON CURBSNCY ANd BAMKt. [CHAP. XXmV

This, however, is to suppose that money coad
not be borrowed, if the Bank did not lend it, and
that the market rate of interest and profit depends
on the amount of the issues of money, and on the
channel through which it is issued. But as a coun-
try would have no deficiency of cloth, of wine, or
any other commodity, if they bad the means of
paying for it, in the same manner neither would
there be any deficiency of money to be lent, if the
borrowers ofifered good security, and were willing
to pay the market rate of interest for it.

In another part of this work, I have endeavoar-
ed to shew, that the real value of a commodity is
regulated, not by the accidental advantages which
may be enjoyed by some of its producers^ but by
the real difficulties encountered by that producer
who is least favoured. It is so with respect to the
interest for money; it is not regulated by the rate
at which the Bank will lend, whether it be 5, 4,
or d per cent., but by the rate of profits which can
be made by the employment of capital, and iduch
is totally independent of the quantity, or of the
value of money. Whetlier a Bank lent one mil-
lion, ten million, or a hundred millions, they would
not permanently alter the market rate of interest;
they would alter only the value of the money which
they thus issued. In one case, 10 or 20 times more
money might be required to carry on the same busi-
ness, than what might be required in the other.
The applications to the Bank for money, then, d««

CHAP. XXYII.] ON CURRENCY AND BANKS. 487

pend on the comparison between the rate of profits
that may be made by the employment of it, and
tiie rate at which they are willing to lend it. If
they charge less than the market rate of intei^est,
there is no amount of money which they might not
lend, — if they charge more than that rate, none
but spendthriils and prodigals would be found to
borrow of them. We accordingly find, that when
the market rate of interest exceeds the rate of 5
per cent, at which the Bank uniformly lend, the
discount office is besieged with applicants. for mo-
ney ; and, on the contrary, when the market rate
is even temporarily under 5 per cent«, the clerks of
that office have no employment.

The reason, then, why for the last twenty 3rears,
the Bank is said to have given so much aid to
commerce, by assisting the merchants with money,
is, because they have, during that whole period,
lent money below the market rate of interest ; be-
low that rate at which the merchants could have
borrowed elsewhere ; but, I confess, that to me this
seems rather an objection to their establishment>
than an argument in fitvour of it.

What should we say of an establishment which
should regularly supply half the clothiers with
wool under the market price? Of what bene-
fit would it be to the community? It would not
extend our trade, because the wool would equally
have been bought if they had charged the market

438 ON CUKRENCY AND BANKS. {[CHAP. XXVH*

price for it. It would not lower the price of doth
to the consumer, because the price, as I have said
before, would be regulated by the cost of its produc-
tion to those who were the least favoured. Its sole
effect, then, would be, to swell the profits of a part
of the clothiers beyond the general and common
rate of profits. The establishment would be de-
prived of its fair profits, and another part erf the
community would be in the same degree benefited.
Now this is precisely the effect of our banking
establishments; a rate of interest is fixed by the
law below tlmt at which it can be borrowed in the
market, and at this rate the Bank are required to
lend, or not to lend at all. From the nature of
their establishment, they have large funds which
they can only dispose of in this way ; and a part of
the traders of the country are unfairly, and, for the
country, unprofitably benefited, by being enabJed
to supply themselves with an instrument of trade,
at a less charge than those who must be influenced
only by market price.

Tlie whole business, which the whole c(»nmu-
nity can carry on, depends on the quantity of its
capital, that is, of its raw material, machinery, food,
vessels, &c. employed in production. AAer a well
regulated paper money is established, these can
neither be increased nor diminished by the opera-
tions of banking. If, then, the State were to issue
the paper money of the country, although it should
never discount a bill, or. lend one shilling to

CHAir. XXVU.} OK^ CUftRENCY AND BANKS. 4t#

the public, there would be no alteration in tUd
amount of trade ; for we should have the same
quantify of raw materials, of machinery, food, and
ships ; and it is probable, too, that the same amount
of m<Niey might be lent» not always at 5 per cent,
indeed, a rate fixed by law, when that might be un«
der the market rate, but at 6, 7> or 8 per cent«i
the result of the fair competition in the market be«
tween the lenders and the borrowers.

Adam Smith speaks of the advantages derived
by merchants from the superiority of • the Scotch
mode of affording accommodation to trade, over
the English mode, by means of cash accounts.
These cash accounts are credits given by the Scotch
banker to Ms customers, in addition to the bills
which he discounts for them ; but, as the banker,
in proportion as he advances money, and sends it
into circulation in one way, is debarred from issu^
ing so much in the other, it is diflScult to percdvt
in what the advantage consists. If the whole cin-
culation will bear only one million of paper, xm^
million only will be circulated ; and it can be of
no real importance either to the banker or mer«i-
chant, whether the whole be issued in discounting
bills, or a part be so issued, and the remainder b^
issued by means of these cash accounts.

It may perhaps be necessary to say a few words
on the subject of the two metals, gold and silver,
are. employed in currency, particularly as

440 ON CUBBENCY AND BANKS. [^CHAP. XJCVlfc

tfab question appears to perplex, in many people**
minds, the jdain and simple principles of currency.
«* In England,'* says Dr. Smith, ** gold was not
considered as a legal tender for a long time after it
was coined into money. The proportion between
the values of gold and silver money was not fixed
by any public law or proclamation, but was left
to be settled by the market If a debtor offered
pa3rment in gdd, the creditor might either rgect
such payment altogether, or accept of it at such a
valuation of the gold, as he and his debtor could
agree upon."

In this state of things it is evident that a guinea
might sometimes pass for ii2s. or more, and some-
times for 18^. or less, depending entirely on the
alteration in the relative market value of gold and
silver. All the variations, too, in the valhe ofgold^
as well as in the value of silver, would be rated in
the gold coin, — it would appear as if Mlver was in-
variable, and as if gold only was subject to rise and
fall. Thus, although a guinea passed for 2^
instead of 1 8^., gold might not have varied in value ;
the variation might have been wholly confined to
the silver, and therefore 2S^. might have been of
no more value than 18^. were before. And, on the
contrary, the whole variation might have been in
the gold : a guinea, which was worth IS^., might
have risen to the value of 22s.

If now we suppose this silver currency to be de-

CHAP* XXyiI.3 ON CURREKCT AND BANKS. 441

based by cUppingy aiid also increaaed in quantity »
a guinea might pass for 30^. ; for the silver in 30s.
of such debased mon^ might be of no more value
than the gold in one guinea. By restoring the
silver currency to its Mint value, silver money
would rise : but it would appear as if gold fell, for
a guinea would probably be of no more value than
21 of such good shillings.'

If now gold be also made a legal tender, and
every debtor be at liberty to discharge a debt by
the payment of 420 shillings, or twenty guineas for
every 21L that he owes, he will pay in one or the
other according as he can most cheaply discharge
his debt. If with five quarters of wheat he can
procure as much gold bullion as the Mint will coin
into twenty guineas, and for the same wheat as
much silver bullion as* the Mint will coin for him
into 430 shillings, he wiU prefer paying in silver,
because he would be a gainer of ten shillings by so
pa3ring his debt. But if, on the contrary, he could
obtain with this wheat as much gold as would be
coined into twenty guineas and a half, and as much
silver only as would coin into 4S0 shillings, he
would naturally prefer paying his debt in gold«
If the quantity of gold which he could procure
could be coined only into twenty guineas, and the
quantity of silver into 420 shillings, it would be a
matter of perfect indifference to him in which
money, silver or gold, it was that he paid his debt.
It is not then a matter of chance j it is not because

i42 ON CURBEMCT AMJ> BANKfb ^CHAP. XXVIL

gold is better fitted for du^rying on the
of a rich country, that gold is ever preferred for
the purpose of paying debts ; but» simply, because
it is the interest of die debtor so to pay them.

During a long period previous to 1797* the year
of the restriction on tha Bank pajntnents in cmn,
gold was so cheap, compared with silver, that it
suited the Bank of England, and all other debtors,
to purchase gold in the market, and not silver, for
the puipose of carrying it to the Mint to be coined,
as they could in that coined metal more cheaply
discharge their debts. The silver currency was,
during a great part of this period, very much de*
based; but it existed in a degree of scarcity, and,
therefore, on the principle which I have before ex,
plained, it never sunk in its current value. Thou^
so debased, it was still the interest of debtons to
pay in the gold coin. If, indeed, the quantity of
this debased silver coin had been enormously great,
or if the Mint had issued such debased pieces, it
might have been the interest of debtors to pay in
this debased money ; but its quantity was limited
and it sustained its value, and, therefore, gold wis
in practice the real standard of currency.

That it was so, is no where denied ; but it Jms
been contended, that it was made so by the bcw,
which declared that silver shoidd not be a legal
tender for any debt exceeding ^/L, "^ unless by
weight, according to the Mint standard.

CHAP. XXVII.] ON CURRENCY AND BANKS. 443

: But this law did not prevent any debtor from
paying his debt, however large its amount, in silver
currency fresh from the Mint ; that the debtor did
not pay in this metal, was not a matter of chance,
nor a matter of compulsion, bjut wholly the eiSect
of choice ; it did not suit him to take silver to the
Mint, it did suit him to take gold thither. It is
probable, that if the quantity of this debased silver
in circulation had been enormously great, and also
a legal tender, that a guinea would have been again
worth thirty shillings ; but it would have been the
debased shilling that would have fallen in value, and
not the guinea that had risen.

It appears, then, that whilst each of the two
Inetals was equally a legal tender for debts of any
amount, we were subject to a constant change in
the principal standard measure of value. It would
sometimes be gold, sometimes silver, depending eur
tirely on the variations in the relative value of the
two metals ; and at such times the metal, which
was not the standard, would be melted, and with-
drawn from circulation, as its value would be
greater in bullion than in coin. This was an in-
convenience, which it was highly desirable should
be remedied; but so slow is the progress of improve-
ment, that although it had been unanswerably de-
monstrated by Mr. Locke, and had been noticed
by all writers on the subject of money since his day,
a better system was never adopted till the session
of Parliament, 1816, when it was enacted that gold

444 ON CURREKCT AND BAKK8* [CHAP. XXVIf.

only should be a legal tender for any sum exceed-
ing forty shillings.

Dr. Smith does not appear to have been quite
aware of the effect of employing two metals as
currency, and both a legal tender for debts of any
amount ; for he says, that " in reality, during the
continuance of any one regulated proportion be*
tween the respective values of the diflerent metals
in coin, the value of the most precious metal re-
gulates the value of the whole coin/' Because
gold was in his day the medium in which it suited
debtors to pay their debts, he thought that it had
some inherent quality by which it did then^ and
always would regulate the value of silver coin.

.On the reformation of the gold coin in 1774, a
new guinea fresh from the Mint, would exch&nge
for only twenty-one debased shillings ; but in the
reign of King William, when the silver coin was
in precisely the same condition, a guinea also new
and fresh from the Mint would exchange for thirty
shillings. On this Mr. Buchanan observes, ** here,
then, is a most singular fact, of which the common
theories of currency oifer no account ; the guinea
exchanging at one time for thirty shillings, its in-
trinsic worth in a debased silver currency, and af-
terwards the same guinea exchanged for only
twenty-one of those debased shillings. It is dear
that some great change must have intervened in
the state of the currency between these two difier-

CHAP. XXVn.] ON CURAEKCY AND BANKS* 445

ent periods, of which Dr. Smith's hypothesis ofiera
no explanation."

It appears to me, that the difficulty may be very
simply solved, by referring this different state of the
value of the guinea at the two periods mentioned,
to the different quantities of debased, silver cur«
rency in circulation. In King William's reign gold
was not a legal tender ; it passed only at a conven-
tional value. All the large payments were pi:o-
bably made in silver, particularly as paper cur-
rency, and the operations of banking, were then
little understood. The quantity of this debased
silver money exceeded the quantity of silver money,
which would have been maintained in circulation,
if nothing but undebased money had been in use ;
and, consequently, it was depreciated as well as de-
based. But in the succeeding period when gold
was a legal tender, when Bank notes also were used
in effecting payments, the quantity of debased
silver jnoney did not exceed the quantity of silver
coin fresh from the Mint, which would have circu-
lated if there had been no debased silver money ;
Kence, though the money was debased, it was not
depreciated. Mr. Buchanan's explanation is some-
what different ; he thinks that a subsidiary currency
is not liable to depreciation, but that the main cur-
rency is. In King William's reign silver was the
main currency, and hence was liable to deprecia-
tion. In 1774 it was a subsidiary curency, and,
therefore, maintained its value. Depreciation, how-

446 ^N CURBENCT AND BANKS. [^CHAP* XXYIl*

ever, does not depend on a currency beii^ the
subsidiary or the main currency, it depends wholly
on its being in excess of quantity *•

To a moderate seignorage on the coinage of
money there cannot be much objection, particularly
on that currency which is to effect the smaller pay-
ments. Money is generally enhanced in value to

* It has lately been conended in parliament by Lord Laud^-
dale, that, with the existing Mint regulation, the Bank could not
pay their notes in specie, because the relative value of the tiro
ni^ak is such^ that it would be for the interest of all debtors to
Mj dieir dfbts with silver and not with g^d coin, while the law
gives a power to all the creditors of the Bank to denoand gold
in' exchange for Bank notes. This gold, his Lordship thinks,
could be profitably exported, and if so, he contends that the Bank,
to keep ft supply, will be obliged to buy gold constantly at a pre-
mium, and sdl it at par. If every other debtor could pay io silver,
I^rd Lauderdale would be right ; but he cannot do ao if jus debt
exceed 40«. This, then, would limit the amount of silver coin in
circulation ; (if Government had not reserved to itself tlie power
to stop the coinage of that metal whenever they might think it
expedient,) because if too much silver were coined, it would
aixA: in rdative value to gold, and no man would accept it in pay-
ment for a debt exceeding 40 shillings, unless a compensation
were made for its lower value. To pay a debt of 100/., one hun-
dred sovereigns, or Bank notes to the amount of 100/. would be
necessary, but 105/., in silver coin might be required, if there
were too much silver in circulation. There are, then, two diedb
i^^ainat an excessive quantity of silver coin ; first, Ae dkcct
check which Government may at any time interpose to prevent
more from being coined ; secondly, no motive of interest would
lead any one to take silver to the Mint, if he might do so, for if
it were coined, it would not pass current at its Mint, but only at
its market value.

CHAP. XXVII.] ON CURRENCY AND BANKS. 447

the full amuont of the seignorage, and, therefore, it
is a tax which in no way affects those who pay it,
while the quantity of money is not in. excess. It
must, however, be remarked, that in a country
where a paper currency is established, although the
issuers of 'such paper should be liable to pay it in
specie on the demand of the holder, still, both
their notes and the coin might be depreciated to
the full amount of the seignorage on that coin,
which is alone the legal tender, before the check,
which limits the circulation of paper, would ope-
rate. If the seignorage of gold coin were 6 per
cent, for instance, the currency, by an abundant
issue of Bank-notes, might be really depreciated
5 per cent, before it would be the interest of the
holders to demand coin for the purpose of melting
it into bullion ; a depreciation to which we should
never be exposed, if either there was no seignorage
on the gold coin ; or, if a seignorage were allowed,
the holders of Bank-notes might demand bullion,
and not coin, in exchange for them, at the Mint price
of 31. 17s. lO^d. Unless, then, the Bank should be
obliged to pay their notes in bullion or coin, at the
will of the holder, the late law which allows a seig-
norage of 6 per cent., or four-pence per oz., on the
silver coin, but which directs that gold shall be
coined by the Mint without any charge whatever,
is perhaps the most proper, as it will most effectu-
ally prevent any unnecessary variation of the cur-
rency.

CHAPTER XXVIII.

ON THE COMPARATIVE VALUE OF

GOLD, CORN, AND LABOUR,

IN RICH AND POOR COUNTRIES.

•* Gold and silver, like all other commodities," says
Adam Smith, " naturally seek the market where
the best price is given for them ; and the best
price is commonly given for every thing in the
country which can best afhrd it. Labour, it must
be remembered, is the ultimate price which is paid
for every thing ; and in countries where labour is
equally well rewarded, the money price of labour
will be in proportion to that of the subsistence of
the labourer. But gold and silver will naturally
exchange for a greater quantity of subsistence in a
rich than in a poor country ; in a country which
abounds with subsistence, than in one which is
but indifferently supplied with it."

But com is a commodity, as well as gold, alver,
and other things ; if all commodities, therefore,
have a high exchangeable value in a rich country,
com must tiot be excepted ; and hence we might
correctly say, that com exchanged for a geat deal
of money, because it was dear, and that money, too,

eaAP. XXVUI.3 of oqld^ corn» and labour-, &c. 449

exchanged for a great deal of corn, because that
also was dear ; which is to assert that com is dear
.and cheap at the same time* No point in political
•economy can be better established, than that a rich
country is prevented from increasing in populati0n«
in the same ratio as a poor country, by the pro**
gressive difficulty of providing food. That difficulty
must necessarily raise the relative price of food, and
give encouragement to its importation. How then
can money, or gold and silver, exchange for more
•com in rich, than in poor countries ? It is only in
rich countries, where corn is dear, that landholders
induce the legislature to prohibit the importation
of com. Who ever heard of a law to prevent the
importation of raw produce in America or Poland?
— - Nature has effectually precluded its importation
by the comparative facility of its production in those
countries.

How, then, can it be true, that << if you expept
com, and such other vegetables, as are raised alto*
gether by human industry, all other sorts of rude
produce — cattie, poidtry, game of all kinds, the
usefid fossils and minerals of the earth, &c., natu*
rally grow dearer as the society advances.'* Why
should corn and vegetables alone be excepted?
Dr. Smith's error throughout his whole work, lies
In supposing that the value of com is constant;
that though the value of all other things may, the
value of com never can be raised. Corn, accord*
ing to him, is always of the same, value because

G o

%bO OS THE COMPARATHTE VALUE [CHAP. XXVXCU

it will always feed the same number of people. la
the same mamier it might be said^, that doth is
ialways of the same vahie» because it will always
make the same number of coats. What can va-
lue have to do with the power of feeding and
Nothing?

Com, like every other commodity, has in eveiy
country its natural price, viz. that price whidi is
necessary to its production, and without which it
could not be cultivated : it is this price which go*
yems its market price, and which determines the
expediency of exporting it to foreign countries. If
the importation of corn were prohibited in England^
its natural price might rise to 6/. per quarter in
England, whilst it was only at half that price in
France. If at this time, the prohibition of impor*
tation were removed, com would fall in. the Engv
lish market, not to a price between 6L and 3£., but
ultimately and permanently to the natural price of
France, the price at which it could be fumi^ued to
the English market, and afford the usual and ordi-
nary profits of stock in France ; and it would re-
main at this price, whether England consumed a
hundred thousand, or a million of quarters. If the
demand of England were for the latter quantity, it
is probable that, owing to the necessity under which
prance would be, of having recourse to land of a
worse quality, to furnish this large supply, the na*
tural price would rise in France ; and tliis would <^
course affect also the price of com in England. AH

e\iAP. XXVIII. J OP gold.gorn:, and LA90\m^ &c. 45^.

that I contend for is, that it is the natural price of
dommodities in the exporting country, which ulti-
mately regulates the prices at which they shall be-
sold, if they are not the objects of monopoly, in
the importing country.

But Dr. Smith, who has so ably supported the
doctrine of the natural price of commodities plti-*
mately regulating their market price, has supposed
a case in which he thinks that the market price
would not be regulated either by the natural price
of the exporting or of the importing country*
'* Diminish the real opulence either of Holland,
or the territory of Genoa, '^ he says, ** while the'
rt umber of their inhabitants remains the same; di-
minish their power of supplying themselves from
distant countries, and the price of com, instead of
sinking with that diminution in the quantity of their
silver which must necessarily accompany this de-«
clension, either as its cause or as its efiect, will rise
to the price of a famine/*

To me it appears, that the very reverse would
take place : the diminished power of the Dutch or
Genoese to purchase generally, might depress the
price of com for a time below its natural price in
the country from which it was exported, as well as^
in the countries in which it was imported ; but it is
quite impossible that it could ever raise it above
^at price. It is only by increasing the opulence
of the Dutch or Genoese, that you could increase,

o » ?

45i On THE COMPARATHTS VALUE ([CHAP* XXVm^

the demand, and raise the price of com above its.
former price 5 and that would take place only for a
Very limited time, unless new difficulties should,
arise in obtaining the supply.

Dr. Smith further observes on this subject:
•^ When we are in want of necessaries, we must
part with all superfluities, of which the value, as
it rises in times of opulence and prosperity, so it
sinks in times of poverty and distress." This is-
undoubtedly true ; but he continues, ** it is other-
wise with necessaries. Their real price, the quan*
tity of labour which they can piuchase or command,
rises in times of poverty and distress, and sinks in.
times of opulence and prosperity, which are always
times of great abundance, for they could not other-
wise be times of opulence and prosperity. Com is
a necessary, silver is only a superfluity."

•' Two propositions are here advanced, which have
no connexion with each other ; one, that under the
circumstances supposed, com would command more
labour, which is not disputed ; the other, that com
Would sell "at a higher money price, that it would
Exchange for more silver; this I contend to be
Erroneous. It might be true, if com were at the
feme time scarce — ^if the usual supply had not been
furnished. But in this case it is abundant; it is
not pretended that a less quantity than usual is im»
^^orted, or that more is required. To purchase
, eorn, the Dutch or Genoese want money, and ta

AUAP. XXVHX.3 O^ COLD, CORK» AND LAJBOlJm &C. 45S

Obtain this money, they are obliged to sell their
superfluities. It is the market value and price of
these superfluities which falls, and money appear^
to rise as compared with them. But this wiU not
tend to increase the demand for com» nor to lowec
the value of money, the only two causes which cati
raise the price of corn* Mdney» from a want of
credit, and from other causes, may be in great
demand, and consequently dear, comparatively With
com ; but on no just principle can it be maintftinedf
that under such circumstances money would be
^heap, ^nd therefore, that the price of com would
rise. ]

i ' ' • ^ ■ .

When we speak of the high or low value of gold^
silver, or any other commodity in difierent coun^
tries, we should always mention some medium in
which we are estimating them, or no idea cati be(
attached to the proposition. Thus, when gold ift
said to be dearer in England than iu Spain, if uq
commodity is mentioned, what notion does the
assertion convey ? If com, olives, oil, wine, and^
wool, be at a cheaper price in Spain than in £ng-»
land ; estimated in those commodities, gold is dearer,
in Spain. If, again, hardware, sugar, cloth, &c..
be at a lower price in England than in Spain, then,r
estimated in those commodities, gold is dearer in:
England. Thus gold appears dearer or cheaper inr
Spain, as the fancy of the observer may fix on the:
medium by which he estimates its value^ . Adain^

454 bN THC COMPARATIVE VALUE [^dHAP. XXVIIZk

iSmith, having stamped corn and labour as an uni-
versal measure of value, would naturally estimate
the comparative value of gold by the quantity of
those two objects for which it would exchange :
and, accordingly, when he speaks of the compara<>
tive value of gold in two countries, I understand
him to mean its value estimated in com and labour«

But we have seen, that, estimated in com, golA
may be of very different value in two countries*
I have endeavoured to shew that it will be low in
rich countries, and high in poor countries ; Adam
Smith is of a different opinion : he thinks that, the
value of gold, estimated in com, is highest in rich
countries. But without further examining which
of these opinions is correct, either of them is suffix
eient to shew, that gold will not necessarily be lowe^
in those countries which are in possession of the
mines, though this is a proposition maintained by
Adam Smith* Suppose England to be possessed
of the mines, and Adam &nith's opinion, that gold
36 of the greatest value in rich countries, to be
correct : although gold would naturally flow fiom
England to all other countries in exchange for their
goods f it would not follow that gold was necessarily
lower in England, as compared with c<Mn and la*
bour, than in those countries. In another place,
however, Adam Smith speaks^of the precious metala
being necesssuily lower in Spain and Portugal, than-
in other parts of Europe^ because those countries

euxF.xxvm.'] or gold, cobk, and laboub, &c* ^$

hiqppen to be almost the exclusive possessoils of the
mines which produce them. *' Poland, where the
feudal system still continues to take place> is at thip
day as beggarly a country as it was before the dist-
covery of America. The money price qfcom^ Aottv
ever^ has risen ; the real value of the precious
METALS HAS FALLEN in Poland, in the same manner
as in other parts of Europe. Their quantity, there-
fore, must have increased there as in other places,
and nearly in the same proportion to the annual pro •
duce of the land and labottr. This increase of the
quantity of those metals, however, has not, it
seems, increased that annual produce; has neither
improved the manufactures and agriculture of the
country, nor mended the circumstances of its in-
habitants. Spain and Portugal, the countries which
possess the mines, are, after Poland, perhaps, the
two most beggarly countries in Europe. The value
of the precious metals, however, must be lower in.
Spain and Portugal than in any other parts of
Europe, loaded, not only with a freight and insu-
rance, but with the expense of smuggling, their
exportation being either prohibited, or subjected to
a duty. In proportion to the anntud produce of the
land and labour^ therefore^ tiieir qu/mtity must he
greater in those countries than in any other part of
Europe : those countries, however, are poorer than
the greater part of Europe. Though the feudal
system has been abolished in Spain and Portugal,
it has not been succeeded by a much better. ''

456 O^THE COMPARATIVE VAZ^UE, &C. {^CHAP. XXVIIt

- Dr. Smith's argument appears to me to be this :
Crold, when estimated in com, is cheaper in Spain
than in other countries, and the proof of this is, not
that com is given by other countries to Spain for
gold, but that cloth, sugar, hardware, are by thoaa
^(iountries given in exchange for that metal*.

CHAPTER XXIX.

TAXES PAID BY THE PRODUCER.

MoN8. Say greatly magnifies the inconveniences
which result if a tax on a manufactured commodity
is levied at an early, rather than at a late period of
its manufacture. The manufacturers, he observes^
through whose hands the commodity may sue*
cessively pass, mast employ greater funds in con«^
sequence of having to advance die tax, which is
often attended with considerable difficulty to a
manufacturer of very limited capital and credit;
To this observation no objection can be made»

Another inconvenience on which he dwells is^
that in consequence of the advance of the tax» the
profits on the advance also must be charged to the
consumer, and that this additional tax is one firom
which the treasury derives no advantage^ >

In this latter objection I cannot agree witli M«
Say. The State, we will suppose, wants to raise
immediately lOOO/L and levies it on a manufacturer^
who will not, for a twelvemonth, be able to charge
it to the consumer on his finished commodity. : Ii(
consequence of such delay, he is obliged to charge
for his coqimodity an additional . price^ pot only of

458 TAXSS PAIP BT THE PRODUCER. [CHAP. XXIX.

10002.^ the amount of the tax, but probably of
llOOA, 100/. being for interest on the 1000/L ad-
vanced. But in return for tliis additional lOOil
paid by the consumer, he has a real benefit, inas-
much as his payment of the tax which Government
required immediately, and which he must finally
pay, has been postponed for a year ; an opportu*
nity, therefore, has been aflorded to him of lending
to the maaufiictureti who Jtud ticcasion for it, the
1000/. at 10 per cent, or at any otha rate <^ in«
terest which might be agreed upon. Eleven hnn^
dred pounds payable at the end of one year, when
money b at 10 per cent interest, is of no more
yplue than 1000/. to be paid immediately. If
Government delayed receiving the tax for one
year till the ittanufacture of the commodity was
completed, it would, perhaps, be obliged to issue
an Exchequer bill bearing interest and it would
pay as much for interest as the consumer would
save in price, excepting indeed, that portion
of the price which the manu&cturer might be ena*
bled in consequence of the tax, to add to his
own real gains. If for the interest of the Exche-
quer bill. Government would have paid 5 per cent,
a tax of SOL is saved by not issuing it If the
manufkcturer borrowed the additional capital at 5
per cent, and charged the consumer 10 per cent,
he also will have gained 5 per cent on his advance
over and above his usual profits, so that the manufac-
turer and Government together gain, or save, pre^
cisely the sum which the consuiper pays. • •

CHAP* XXIX. j TAXES I^AID BY TH£ PRODUCER. 4^9

M. Simonde, in his excellent work, De la
Richesse Commercialey follomng die same line of
argument as M . Say, has calculated that a tax of
4000 francs, paid originaUy by a manufacturer,
whose profits were at the moderate rate of 10 per
cent., would, if the commodity manufactured, only
passed through the hands of five different persons,
be raised to the consumer to the sum of &/f94» francs4
This calculation proceeds on the supposition, that
he who first advanced the tax, would receive from
tiie next manufacturer 4400 francs, and he again
from the next, 4840 francs ; so that at each step
10 per cent, on its value would be added to it.
This is to suppose that the value of the tax would
be accumulating at compound interest j not at the
rate of 10 per cent, per annum, but at an absolute
rate of 10 per cent, at every step of its progress.
This opinion of M. de Simonde would be correct,
if five years elapsed between the first advance of:
the tax, and the sale of the taxed commodity to the
consumer ; but if one year only elapsed, a remu«
neration of 400 francs, instead of S7^i would giv^
a profit at the rate of 10 per cent, per annum,
to all who had contributed to the advance of the
tax, whether the commodity had passed through
the hands of five manufacturers or fif)y«

CHAPTER XXX.

ON THE INFLUENCE OF DEMAND AND

SUPPLY ON

It is the cost of production \vhich must ultimately
regulate the price of commodities, and not, as has
been often said, the proportion between the supply
and demand : the proportion between supply and
demand may, indeed, for a time, affect the market
value of a commodity, until it is supplied in greater
or less abundance, according as the demand may
have increased or diminished ; but this e^kct will
be only of temporary duration,

Dimini3h the cost of production of hats, and
tiieir price will ultimately fall to their new natural
price» although the demand should be doubled,
trebled, or quadrupled. Diminish the cost of suIk
sistence of men, by diminishing the natural price
of the food and clothing, by whidi life is sustained,,
and wages will ultimately fall, notwithstanding tfaat
the demand for labourers may very greatly increase.

The opinion that the price of commodities de-
pends solely on the proportion of supply to de-

CHAP. XXX.3 ON THE INFLUENCE OF DEMAND, &;C. 46l

inand> or demand to supply, has become almost an
axiom in political economy, and has been the source
of much error in that science. It is this opinion
which has made Mr. Buchanan maintain that wages
are not influenced by a rise or fall in the price of
provisions, but solely by the demand and supply of
labour i and that a tax on the wages of labour
would not raise wages, because it would not alter
the proportion of the demand of labourers to the
supply.

•

' The demand for a commodity cannot be said to
increase, if no additional quantity of it be purchased
or consumed ^ and yet, under such circumstances,
its money value may riste. Thus, if the value of
money were to fall, the price of every commodity
would rise, for each of the competitors would be
willing to spend more money than before on its
purchase ; but though its price rose 10 or 20 per
cent, if no more were bought than before, it would
not, I apprehend, be admissible to say, that the
variation in the price of the commodity was caused
by the increased demand for it. Its natural price,
its money cost of production, would be really al-
tered by the altered value of money ; and without
any increase of demand, the price of the commodity
would be naturally adjusted to that new value,

•

*« We have seen,'* says M. Say, <* that the cost
of production determines the lowest price to which
things can fall : the price below which they can-

4G2 by THE IXFLUEHCE OF DEMAND [^CHAP. XtXd

not remain for any length of time, because prodiiC4
tion would then be either entirely nbapped or dimi.
niahed**' Vol. iL p. S6.

He afterwards says, that the demand for gold
having increased in a still greater prc^rtion than
the supply, since the discovery of the mines, ^' its
price in goods, instead of falling in the proportion
of ten to one, fell only in the proportion of four to
to one ;" that is to say, instead of falling in pro-
portion as its natural price had fallen, fell in pro-
portion as the supply exceeded the demand*. —
** The value qf every commodity rises alwmfs in a
direct ratio to the demand^ and in an inverse ratio
to the supply.**

The same opinion is expressed by the Earl of
Lauderdale*

« With respect to the variations in value, of
which every thing valuable is susceptible, if we
could for a moment suppose that any substance

• * If, with the quantity of gold and ailver which actually esisti,
these metals only served for the manufacture of atensik and
ornaments, they would be abundant, and would be much cheaper
than they are at present : in other words, in exchanging them
for any othfer species of goods, we should be obliged to giTepro^
portionally a greater quantity of them. But as a large quantity
of these metals is used for money, and as this portion is used for
|io other purpose, there remains less to be employed in furniture
and jewellery; now this scarcity adds to their value.— ^Sffyt
vol. ii. p, 316. See also note to p. ?&•

€|HAP. XXX.3 AN1> SUPPLY ON PBJCStS^ 4^

|K)6869sed intrinsic and fixed value, so as to render
an assumed quantity of it constantly, under all cir*
fumstances, of an equal value, then the degree of
value of all things, ascertained by such a fixed
standard, would vary according to the proportion
petmxt the quantity qf therOj and the demand for
them, and every commodity would, of course, be
subject to a variation in its value, from four di£»
ferent circumstances :

1* " It would be subject to an increase of its
value, from a diminution of its quantity.

2. '^ To a diminution of its value, from an aiig-
xnentation of its quantity.

3. ^^ It might suffer an augmentation in its value^
from the circumstance of an increased demand.

4. '^ Its value might be diminished by a failure
of demand.

" As it will, however, clearly appear that no
commodity can possess fixed and intrinsic value,
so as to qualify it for a measure of the value of
other commodities, mankind are induced to select,
as a practical measure of value, that which appears
the least liable to any of these four sources of va^
riations, which wre the sole causes qf altenUion of
value.

%64 ON tRC iNFlXTENtE OF DEllAMI) 4[CHAP. Xt:^.

• <« When, in common language, therefore, we ex-
press the value of any commodity, it may vary at
one period from what it is at another, in conse^
quence of eight different contingencies :

1. ^' From the four circumstances above stated,
in relation to the commodity of which we mean to
irxpress the value*

2. ** From the same four circumstances, in re-
lation to the commodity we have adopted as a
measure of value *."

This is true of monopolized commodities, and
indeed of the market price of all other commodi-
ties for a limited period. If the demand for hats
should be doubled, the price would immediately
rise, but that rise would be only temporary, unless
the cost of production of hats, or their natural price,
trere raised. If the natural price of bread should
fall 50 per cent, from some great discovery in the
science of agriculture, the demandwould not greatly
increase, for no man woiild desire more than would
satisfy his wants, and as the demand would not in-
crease, neither would the supply; for a commodi^
is not supplied merely because it can be produced,
but because there is a demand for it. Here, then.

. ♦ An Inquiry into the Nature and Origin of Public Wealth,
page 13.

CHAP. XXX.] ' AND SUPPLY ON PRICES. 465

we have a case where the supply and demand
have scarcely varied, or if they have increased, they
have increased in the- same proportion j and yet the
price of bread will have fallen 50 per cent, at a
time, too, when the value of money had continued
invariable.

Commodities which are monopolized, either by
an individual, or by a company, vary according to
the law which Lord Lauderdale has laid down:
they fall in proportion as the sellers augment their
quantity, and rise in proportion to the eagerness of
the buyers to purchase them ; their price has no
necessary connexion with their natural value : but '
the prices of commodities, which are subject to
competition, and whose quantity may be increased
in any moderate degree, will ultimately depend,
not on the state of demand and supply, but on the
increased or diminished cost of their production.

H H

CHAPTER XXXL

ON MACHINERY^

In the present chapter I shall enter into some en-
quiry respecting the influence of machinery on the
interests of the different classes of society, a sub-
ject of great importance, and one which appears
never to have been investigated in a manner to lead
to any certain or satisfactory results. It is more
incumbent on me to declare my opinion on tiiis
question, because they have, on further reflection,
undergone a considerable change ; and although I
am not aware that I have ever published any thing
respecting machinery which it is necessary for me
to retract, yet I have in other ways given my sup-
port to doctrines which I now think erroneous ; it,
therefore, becomes a duty in me to submit my
present views to examination, with my reasons for
entertaining them.

Ever since I first turned my attention to questions
of political economy, I have been of opinion, that
such an application of machinery to any branch of
production, as should have the effect of saving
labour, was a general good, accompanied only with
that portion of inconvenience which in most cases

CHAP. XXXr.] ON MACHINERY. 467

attends the removal of capital and labour from one
emplo)rment to another. It appeared to me, that
provided the landlords had the same money rents,
they would be benefited by the reduction in the
prices of some of the commodities on which those
rents were expended, and which reduction of price
could not fail to be the consequence of the em-
ployment of machinery. The capitalist, I thought,
was eventually benefited precisely in the same man-
ner. He, indeed, who made the discovery of the
machine, or who first usefully applied it, would
enjoy an additional advantage, by making great
profits for a time ; but, in proportion as the machine
came into general use, the price of the commodity
produced, would, from the effects of competition,
sink to its cost of production, when the capitalist
would get the same money profits as before, and
he would only participate in the general advantage,
as a consumer, by being enabled, with the same
money revenue, to command an additional quan-
tity of comforts and enjoyments. The class of
labourers also, I thought, was equally benefited by
the use of machinery, as they would have the
means of buying more commodities with the same
money wages, and I thought that no reduction of
wages would take place, because the capitalist
would have the power of demanding and employ-
ing the same quantity of labour as before, although
he might be under the necessity of employing it in
the production of a new, or at any rate of a dif-
ferent commodity. If, by improved machinery,

ir H 2

468 ox MACHINERY. [CHAP. XXXK

with the employment of the. same quantity of
labour, the quantity of stockings could be qua^
drupled, and the demand for stockings were only
doubled, some labovu'ers woidd necessarily be dis-
charged from the stocking trade ; but as the capital
which employed them was still in being, and as it
was the interest of those who had it to employ it
productively, it appeared to me that it would be
employed on the production of some other commo-
dity, useful to the society, for which there could
not fail to be a demand ; for I was, and am, deeply
impressed with the truth of the observation of
Adam Smith, that ^* the desire for food is limited
in every man, by the narrow capacity of the human
stomach, but the desire of the conveniences, and
ornaments of building, dress, equipage and house-
hold furniture, seems to have no limit or certain
boundary.*' As, then, it appeared to me that there
would be the same demand for labour as before,
and that wages would be no lower, I thought that
the labouring class would, equally with the other
classes, participate in the advantage, from the
general cheapness of commodities arising from the
use of machinery.

These were my opinions, and they continue ua-
altered, as far as regards the landlord and the capi-
talist; but I am convinced, that the substitution of
machinery for human labour, is often very injuri-
ous to the interests of the class of labourers.

CHAP. XXXI.3 ON MACHINERY. 469

My mistake arose from the supposition, that when-
ever the net income of a society increased, its gross
income would also increase ; I now, however, see
reason to be satisfied that the one fund, from wliich
landlords and capitalists derive their revenue, may
increase, whUe the other, that upon which the
labouring class mainly depend, may diminish, and
therefore it follows, if I am right, tliat the same
cause which may increase the net revenue of the
country, may at the same time render the popula-
tion redundant, and deteriorate the condition of

the labourer.

• • .•■•*•

" A capitalist we will suppose employs a capital of
the value of 20,000/. and that he carries on the
joint business of a farmer, and a manufacturer of
necessaries. We will further suppose, that 7OOO/.
of this capital is invested in fixed capital, viz. in
buildings, implements, &c. &c. and that the re-
maining 13,000/. is employed as circulating capital
in the support of labour. Let us suppose, too,
that profits are 10 per cent., and consequentiy that
the capitalist's capital is every year put into its ori-
ginal state of efficiency, and yields a profit of 2000A

Each year the capitalist begins his operations, by
having food and necessaries in his possession of th^
value of 13,000/., all of which he sells in the course
of the year to his own workmen for that sum of
money, and, during the same period, he pays

470 ON MACHINERY. ^CUAP. XXXU

them the like amount of money for wages : at the
ead of the year they replace in his possession food
and necessaries of the valae of 15,000/., 2000/. of
which he consumes himself, or disposer of as may
best suit his pleasure and gratification. As far as
these products are concerned, the gross produce
for that year is 15,000/., and the net produce £000/*
Suppose now, that the following year the capi-
taKst employs half his m^i in constructing a ma-
chine, and the other half in producing food and ne-
cessaries as usual. During that year he would pay
the sum of ld,000/. in wages as usual, and woidd
sell food and necessaries to the same amount to his
workmen ; but what would be the case the foUow-
k^year?

While the machine was being made, onfy one-
half of the usual quantity of food and necessaries
would be obtained, and they woUld be only one-
half the value of the quantity which was produced
before. The machine would be worth 7500/L, and
the food and necessaries 7^00/., and, there&re, the
capital of the capitalist would be aa great as before;
fpr he would have besides these two values, his
fixed capital worth 7OOO/., making in the whole
20,000/. capital, and 3000/. profit. After deducting
this latter sum for his own expenses^ he would have
a no greater circulating capital than 6500L with
which to carry on his »ibsequent operations ; and,
therefore, his means of employing labour, would be

CHAP. XXXI.3 ON MACHINERY. ijt

reduced in the proportion of 13,000/. to 5500?.,
and, consequently, all the labour which was before
employed by 7500/., would become redundant.

The reduced quantity of labour which the capi^
talist can enJploy, must, indeed, with the assist-^
ance of the machine, and after deductions for it^
repairs, produce a value equal to 7500/., it must re-
place the circulating capital with a profit of 2000/.
on the whole capital ; but if this be done, if the
net income be not diminished, of what importance
is it to the capitalist, whether the gross income be
of the value of 3000/., of 10,000/., or of 15,000/.?

In this case, then, although the net produce will
not be diminished in value, although its power of
purchasing commodities may be greatly increased,
the gross produce will have fallen from a value of
15,000/i to a value of 7500/., and as the power of
supporting a population, and employing labour, de-
pends always on the gross produce of a nation, and
not on its net produce, there will necessarily be b,
diminution in the demand for labour, population
will become redundant, and the situation of the
labouring classes will be that of distress and poverty.

As, however, tihie power of saving from revenue
to add to capital, must depend on the efficiency of
the net revenue, to satisfy the wants of the capi-
talist, it could not fail to follow from the reduc-
tion in the price of commodities 9onsequent on die

^^2 ON MACHINERY, • [cflAP. XXXI.

introduction of machinery, that with the same
wants he would have increased means of saving, —
increased facUity of transferring revenue into capi-
tal. But with every increase of capital he would
employ more labourers ; and, therefore, a portion of
the people thrown out of work in the first instance,
would be subsequently employed ; and if the in-
creased production, in consequence of the employ-
ment of the machine, was so great as to afford, in the
shape of net produce, as great a quantity of food
and necessaries as existed before in the form of
gross produce, there would be the same ability to
employ the whole population, and, therefore, there
would not necessarily be any redundancy of people.

All I wish to prove, is, that the discovery and
use of machinery may be attended with a diminu-
tion of gross produce ; and whenever that is the
case, it will be injurious to the labouring class, as
some of their number will be thrown out of em-
ployment, and population will become redundant,
compared with the funds which are to employ it.

The case which I have supposed, is the most
simple that I could select ; but it would make no
difference in the result, if we supposed that the ma-
chinery was applied to the trade . of any manufic-
turer, — ^that of a clothier, for example, or of a cot-
ton manufacturer. If in the trade of a clothier,
less cloth would be produced after the introduc-
tion of machinery j for a part of that quantity

CHAP. XXXI.] . ON MACHINERY. 479

ivhich is disposed of for the purpose of paying a
large body of workmen, would not be required by
their employer. In consequence of using the ma-
chine, it would be necessary for him to reproduce
a value, only equal to the value consumed, toge-
ther with the profits on the whole capital. JSOOL
might do this as effectually as 15,000/. did before,
the case differing in no respect from the fonner
instance. It may be said, however, that the de-
mand for cloth would be as great as before, and it
may be asked from whence would this supply
come? But by whom would the .cloth be demand-
ed? By the farmers and the other producers bf ne-
cessaries, who employed their capitals in producing
these necessaries as a means of obtaining cloth :
they gave corn and necessaries to the clothier for
cloth, and he bestowed them on his workmen for
the cloth which their work afforded him.

This trade would now cease ; the clothier would
not want the food and clothing, having fewer men
to employ and having less cloth to dispose of. The
farmers and others, who only produced necessa-
ries as means to an end, could no longer obtain
cloth by such an application of their capitals, and,
therefore, they would either themselves employ
their capitals in producing cloth, or would -lend
them to others, in order that the commodity really
wanted might be furnished ; and that for which no
one had the means of paying, or for which there
was no- demand, might cease to be -produced.

474f O^ BIACHINERY. £CHAP. XXXI.

This, then, leads us to the same result ; the de-
mand for labour would diminish, and the xx>mmodi-
ties necessary to the support of labour would not,
be produced in the same abundance.

If these views be correct, it follows, 1st That
the discovery, and useful application of machinery,
always leads to the increase of the net produce of
the country, although it may not, and will not,
after an inconsiderable interval, increase the value
of that net produce,

2dly. That an increase of the net produce of a
country is compatible with a diminution of the
gross produce, and that the motives for emplojdng
machinery are always sufficient to insure its em-
ployment, if it will increase the net produce,
although it may, and frequently must, diminish
both the quantity of the gross produce, and its
value.

Sdly. That the opinion entertained by the la-
bouring class, that the employment of machinery
is frequently detrimental to their interests, is not
founded on prejudice and error, but is conformable
to the correct principles of political economy.

4thly. That if the improved means of produc-
tion, in consequence of the use of machioery,
should increase the net produce of a country in a
degree so great as not to diminish the gross pro-,
duce, (I m^an always quantity of commodities and

CHAI». XXXI.]] ON MACHINERY* 475

not value,) then the situation of all classes will be
ixxxproved. The landlord and capitalist will bene-
-btf not by an increase of rent and profit, but by
the advantages resulting from the expenditure of
the same rent, and profit, on commodities, very con-
siderably reduced in value, while the situation of
the labouring classes will also be considerably im-
proved ; 1st, from the increased demand for me-
msi servants ; Sdly, from the stimulus to savings
from revenue, which such an abundant net pro-
duce will afford ; and 3dly, from the low price of
all articles of consumption on which their wages
will be expended.

Independently of the consideration of the dis-
covery and use of machinery, to which our atten«
tion has been just directed, the labouring class
have no small interest in the manner in which the
net income of the country is expended, although
it should, in all cases, be expended for the gratifi-
cation and enjoyments of those who are fairly en-
titled to it.

If a landlord, or a capitalist, expends his revenue
in the manner of an ancient baron, in the support
of a great number of retainers, or menial servants,
he will give employment to much more labour,
than if he expended it on fine clothes, or costly
fiimiture j on carriages, on horses, or in the pur-
chase of any. other luxuries.

476 ON MACHINERY* [CHAP. XXXI.

In both cases the net revenue would be the same,
and so would be the gross revenue, but the former
would be realised in different commodities. If my
revenue were 10,000/., the same quantity nearly of
productive labour would be employed, whether I
realised it in fine clothes and costly furniture, &c.
&c. or in a quantity of food and clothing of the
same value. If, however, I realised my revenue in
the first set of commodities, no more labour would
be consequently employed : — I should enjoy my fiir-
niture and my clothes, and there would be an end
of, them ; but if I realised my revenue in food and
clotliing, and my desire was to employ menial
servants, all those whom I could so employ with
my revenue of 10,000/., or with the food and
clothing which it would purchase, would be to be
added to the former demand for labourers, and this
addition would take place only because I chose
this mode of expending my revenue. As the
labourers, then, are interested in the demand for
labour, they must naturally desire that as much of
the revenue as possible should be diverted from
expenditure on luxuries, to be expended in the
support of menial servants.

In the same manner, a country engaged in war,
and which is under the necessity of msuntaining
large fleets and armies, employs a great many
more men than will be employed when the war
terminates, and the annual expenses which it brings
with it, cease.

CHAP. XXXI.] ON MACHINERY. 477

If I were not called upon for a tax of 500/. dur-
ing the war» and which is expended on men in. the
situations of soldiers and sailors, I might probably
expend that portion of my income on furniture,
clothes, books, &c. &c. and whether it was ex-
pended in the one way or in the other, there would
be the same quantity of labour employed in pro-
duction ; for the food and clothing of the soldier
and sailor would require the same amount of in-
dustry to produce it as the more luxurious commo-
dities ; but in the case of the war, there would be
the additional demand for men as soldiers and
sailors; and, consequently, a war which is supported
out of the revenue, and not from the capital of a
country, is favourable to the increase of population.

At the termination of the war, when part of my
revenue reverts to me, and is employed as before
in the purchase of wine, furniture, or other luxu-
ries, the population which it before supported, and
which the war called into existence, will become re-
dundant, and by its effect on the rest of the popu-
lation j and its competition with it for employment,
will sink the value of wages, and very materially
deteriorate the condition of the labouring classes.

There is one other case that should be noticed
of the possibility of an increase in the amount of
the net revenue of a country, and even of its gross
revenue, with a diminution of demand for labour,
and that is, when the labour of horses is substituted

478 ON MACHINERY. [CHAP. XXXI.

for that of man. If I employed one hundred men
on my farm, and if I found that the food bestowed
on fifty of those men, could be diverted to the sup-
port of horses, and afford me a greater return of
raw produce, after allowing for the interest of the
capital which the purchase of the horses would ab-
sorb, it would be advantageous to me to substitute
the horses for the men, and I should accordingly
do so ; but this would not be for the interest of the
men, and unless the income I obtained, was so
much increased as to enable me to employ the men
as well as the horses, it is evident that the popular
tion would become redundant, and the labourers'
condition would sink in the general scale. It is
evident he could not, under any circumstances,
be employed in agriculture ; but if the produce of
the land were increased by the substitution of horses
for men, he might be employed in manufactures, or
as a menial servant.

The statements which I have made will not, I
hope, lead to the inference that machineiy should
not be encouraged. To elucidate the principle, I
have been supposing, that improved machinery is
suddenfy discovered, and extensively used ; but the
truth is, that these discoveries are gradual, and
rather operate in determining the employment of
the capital which is saved and accumulated, than
in diverting capital from its actual employment.

With every increase of capital and population,

CHAP. XXXI.] ON MACHINEBYi 479

food will generally rise, on account of its being
more difficult to produce. The consequence of a
rise of food will be a rise of wages, and every rise
of wages will have a tendency to determine the
saved capital in a greater proportion than before
to the employment of machinery. Madiinery and
labour are in constant competition, and the former
can frequently not be employed until labour rises.

In America and many other countries, where the
food of man is easily provided, there is not nearly
such great temptation to employ machinery as in
England, where food is high, and costs much la-,
bour for its production. The same cause that
raises labour, does nojt raise the value of machines,
and, therefore, with every augmentation of capital,
a greater proportion of it is employed on ma-
chinery. The demand for labour will continue to
increase with an increase of capital, but not in pro-
portion to its increase ; tlie ratio will necessarily hi
a diminishing ratio*.

* " The demand for labour depends on the increasing of cir*
culating, and not of fixed capital. Were it true that the pro-
portion between these two sorts of capital is the same at all
timesi and in all countries, tRen, indeed, it follows that the
number of labourers employed is in proportion to the wealth of
the State. But such a position has not the semblance of proba-
bility. As arts are cultivated, and civilization is extended, fixed
capital bears a larger and larger proportion to circulating capi-
tal. The amount of fixed capital employed in the production
of a piece of British muslin is at least a hundred, probably a
thousand times greater than that employed in the production of

a similar

480 ON MACHINERY. {[CHAP* XXXU

I have before observed, too, that the increase of
net incomes, estimated in commodities, which is
always the consequence of improved machinery,
will lead to new savings and accumulations. These
savings, it must be remembered are annual, and
must soon create a fund, much greater than the
gross revenue, originally lost by the discovery of
the machine, when the demand for labour will be
as great as before, and the situation of the people
will be still further improved by the increased
savings which the increased net revenue will still
enable them to make.

The employment of machinery could never be
safely discouraged in a State, for if a capital is not
allowed to get the greatest net revenue that the

a Bimilar piece of Indian muslin. And the proportion of circu-
lating capital employed is a hundred or a thousand times Jess.
It is easy to conceive that, under certain circumstances, the
whole of the annual savings of an industrious people might be
added to fixed capital, in which case they would have no efiect
in increasing the demand for labour."

Barton, ** On the Condition of the Labouring Classes of So-
ciety," page 16.

It is not easy, I think, to oonceive that under any circum-
stances, an increase of capital should not be followed by an in-
creased demand for labour ; the most that can be said is, that
the demand will be in a diminishing ratio. Mr. Barton, in the
above publication, has, I think, taken a correct view of some
of the effects of an increasing amount of fixed c^apital on the
condition of the labouring classes. His Essay contaios much
valuable information.

CHAP. XXXI.3 ON MACHINERY. 481

use of machinery will afford here, it will be carried
abroad, and this must be a much more serious
discouragement to the demand for labour, than the
«08t extensive employment of machinery; for,
while a capital is employed in this country, it must
create a demand for some labour ; machinery can-
not be worked without the assistance of men, it
cannot be made but with the contribution of their
labour. By investing part of a capital in improved
machinery, there will be a diminution in the
progressive demand for labour ; by exporting it to
another caantr}% the demand will be wholly an-
nihilated.

The prices of commodities, too, are regulated
by their cost of production. By employing im-
proved machinery, the cost of production of com*
modities is reduced, and, consequently, you can
afford to sell them in foreign markets at a cheaper
price. If, however, you were to reject the use of
machinery, while all other countries encouraged it,
you would be obliged to export your money, in ex-
change for foreign goods, till you sunk the natural
prices of your goods to the prices of other coun-
tries. In making your exchanges with those coun-
tries, you might give a commodity which cost two
days labour, here, for a commodity which cost one,
abroad, and this disadvantageous exchange would
be the consequence of your own act, for the com-

I I

482 ON MACHINERY. [CHAP. XXXI.

modity which you export, and which cost you two
days labour, would have cost you only one if you
had not rejected the use of machinery, the services
of which your neighbours had more wisely appro*
priated to themselves,

CHAPITER XXXIL

MIU MALTHUS'S OPINIONS ON RENT.

Although the nature of rent has in the former
pages of this work been treated on at some length ],
yet I consider myself bound to notice some opinions
on the subject, which appear to me erroneous, and
which are the more important, as they are found
in' the writings of one, to whom, of all men of the
present day, some branches of economical science
are the most indebted. Of Mr. Malthus's Essay
on Population, I am happy in the opportunity here
afforded me of expressing my admiration. The as«
saults of the opponents of this great work have only
served to prove its strength ; and I am persuaded
that its just reputation will spread with the cultiva*
lion of that science of which it is so eminent an
ornament. Mr. Maithus, too, has satisfactorily ex-
plained the principles of rent, and shewed that it
rises or falls in proportion to the relative advan-
tages, either of fertility or situation, of the different
lands in cultivation, and has thereby thrown much
light on many difficult points connected with the
subject of rent, which were before either unknown,
or very imperfectly understood ; yet he appears to
me to have fallen into ^me errors, which his au-

II 2

484 MR. MALTHUS'S f CHAP. XXXII.

thority makes it the more necessary, \vhilst his cha-
racteristic candour renders it less unpleasing to
notice. One of these errors lies in supposing rent
to be a clear gain and a new creajdon of riches.

I do not assent to all the opinions of Mr. Bu-
chanan concerning rent ; but with those expressed
in .the following passage, quoted from his work by
Mr. Malthus, I fully agree ; and, therefore, I must
dissent from Mr. Malthus's comment on them.

*« In this view it (rent) can form no general ad-
dition to the stock of the community, as the neat
surplus in question is nothing more than a revenue
transferred from one class to another ; and from the
mere circumstance of its thus changing hands, it is
clear that no fund can arise, out of which to pay
taxes. The revenue which pays for the produce ef
the land, exists already in the hands of those who
purchase that produce ; and, if the price of sub-
sistence were lower, it would still remain in their
hands, where it would be just as available for tax-
ation as when, by a higher price, it is transferred
to the landed proprietor."

After various observations on the difierence be-
tween raw produce and manufactured "Commodities,
Mr. Malthus asks, " Is it possible thep, with M. de
Sismondi, to regard rent as the sole produce of
labour, which has a value purely nominal, and tlie
mere result of that augmentation of price which a

CHAP. XXXri.] OPIKIOMS ON RENT. 485

seller obtains in consequence of a peculiar privilege;
or, with Mr. Buchanan, to consider it as no addition
to the national wealth, but merely a transfer of va-
lue, advantageous only to the landlords, and pro-
portionally injurious to the consumers* ?"

I have already expressed my opinion on this sub-
ject in treating of rent, and have now only further
to add, that rent is a creation of value, as I tiJider-
stand that word, but not a creation of wealth. If
the price of com, from the diflSculty of producing
any portion of it, should rise from 4/. to 51. per
quarter, a million of quarters will be of the value of
5,000,000/. instead of 4,000,000/., and as this com
will exchange not only for more money, but for
more of every other commodity, the possessors will
have a greater amount of value ; and as no one else ,
will, in consequence, have a less, the society alto- .
gether will be possessed of greater value, and in that
sense rent is a creation of value. But this value is
so far nominal, that it adds nothing to tlie wealth,
that is to say, the necessaries, conveniences, and en-
joyments of the society. We should have precisely
the same quantity, and no more of commodities,
and the same million quarters of com as before j
but the effect of its being rated at 51. per quarter,
instead of 4/., would be to transfer a portion of the
value of the corn and commodities from their former
possessors to the landlords. Rent then is a creation

* Aq Inquiry into the Nature and Progress of Rent| p. 15*

486 MR. MALTHUS'S ^CUAP. XXXJU

of value, but not a creation of wealth ; it adds no-
thing to the resources of a country, it does not en-
able it to maintain fleets and armies ; for the country
would have a greater disposable fiind if its land
were o£ a better quality, and it could employ the
same capital witliout generating a rent.

It must then be admitted that Mr, Sismondi and
Mr. Buchanan, for both their opinions are substan-
tially the same, were correct, when they considered
rent as a value purely nominal, and as forming no
addition to the national wealth, but merely as a
transfer of value, advantageous only to the land^
lords, and proportionably injurious to the con-
sumer.

In another part of Mr. Malthus*s " Inquiry*'
he observes, " that the immediate cause of rent is
obviously the excess of price above the cost of pro-
duction at which raw produce sells in the market /'
and in another place he says, ** that the causes of
the high price of raw produce may be stated to be
three :—

" First, and mainly, that quality of the earth, by
which it can be made to yield a greater portion of
the necessaries of life than is required for the main-
tenance of the persons employed on the land.

" 2dly. That quality peculiar to the Tiecessaries
of life, of being able to create their own demand, or

CHAP. XXXII.] OPINIONS ON RENT. 487

to raise up a number of demanders in proportion to
the quantity of necessaries produced.

" And Sdly. The comparative scarcity of the
most fertile land.'' In speaking of the high price
of com, Mr. Malthus evidently does not mean the
price per quarter or per bushel, but rather the
excess of price for which the whole produce will
sell, above the cost of its production, including
always in the term ** cost of its production," profits
as well as wages. One hundred and fifty quarters
of corn at 3/. 10^. per quarter, would yield a larger
rent to the landlord than 100 quarters at 4/., pro«
vided the cost of production were in both cases the
same.

High price, if the expression be used in this
sense, cannot then be called a cause of rent ; it can-
not be said ** that the immediate cause of rent is
obviously the excess of price above the cost of pro-
duction, at which raw produce sells in.the market,'^
for that excess is itself rent. Rent, Mr. Malthus
has defined to be <' that portion of the value of the
whole produce which remains to the owner of the
land, after all the outgoings belonging to its culti*
vation, of whatever kind, have been paid, including
the profits of the capital employed, estimated aC'
cording to the usual and ordinary rate of the profits
of agricultural stock at the time being.*' Now
whatever sum this excess may sell for, is money

488 3|rR. MALTMUS'S [CHAP. XXXll.

rent ; it is what Mr. Malthus means by " the ex-
cess of price above the cost of production at which
raw produce sells in the market ; " and, therefore,
in an inquiry into the causes which may elevate the
price of raw produce, compared with the cost of
production, we are inquiring into the causes which*
may elevate rent.

In reference to the first cause which Mr. Malthus*
has assigned for the rise of rent, namely, " that
quality of the earth by which it can be made ta
jield. a greater portion of the necessaries of life than
is required for the maintenance of the persons em-
ployed on the land," he makes the following obser-
vations : " We still want to know why the consump-
tion and supply are such as to make the price so
greatly exceed the cost of production, and the main
cause is evidently the Jer tilt ty of the earth in pro-
ducing the necessaries of life. Diminish this plenty,
diminish the fertility of the soil, and the excess will
diminish ; diminish it still further, and it wiU dis-
appear.** True, the excess of necessaries will di-
minish and disappear, but that is not the question*
The question is, whether the excess of their price
above the cost of their production will diminish and
disappear, for it is.on this that money rent depends.
Is Mr. Malthus warranted in his inference^ that. be-
cause the excess of quantity wiU diminish and dis-
appear, therefore *^ the cause of the high price of
the necessaries of life above the cost <^ production

CHAP. XXXIf.] OPmiONS ON KBlSfT. 489

is to be fbund in their abundance, rather than in
their scarcity ; and is not only essentially different
from tlie high price occasioned by artificial monopo*
lies, but from the high price of those peculiar
products of the eartli, not connected with food,
which may be called natural and necessary monopo-
lies ?"

Are there no circumstances under which the
fertility of the land, and the plenty of its produce
may be diminished, without occasioning a dimi-
nished excess of its price above the cost of pro-
duction, that is to say, a diminished rent ? If there
are, Mr. M althus's proposition is much too univer-
sal ; for he appears to me to state it as a general
principle, true under all circumstances, that rent
will rise with the increased fertility of the land, and
will fall with its diminished fertility.

Mr. Malthus would undoubtedly be right, if, of
any given farm, in proportion as the land yielded
abundantly, a greater share of the whole produce
were paid to the landlord ; but the contrary is the
fact : when no other but the most fertile land is in
cultivation, the landlord has the smallest propor-
tion of the whole produce, as well as the smallest
value, iand it is only when inferior lands are re-*
quired to feed an augmenting population, that both
the landlord's share of the whole produce, and the
value he receives, progressively increase.

4,90 MB* MALTHUS'S [CHAF. XXXIl.

Suppose that the demand is for a million of
quarters of com, and that they are the produce of
the land actually in cultivation. Now, suppose the
fertility of all the land to be so diminished, that the
very same lands will yield only 900,000 quarters.
The demand being for a million of quarters, the
price of com would rise, and recourse must neces-
sarily be had to land of an inferior quality sooner
than if the superior land had continued to produce
a million of quarters. But it is this necessity of
taking inferior land into cultivation which is the
cause of the rise of rent, and will elevate it, al-
though the quantity of com received by the land-
lord, be reduced in quantity. Rent, it must be
remembered, is not in proportion to the ab-
solute fertility of the land in cultivation, but in
proportion to its relative fertility. Whatever
cause may drive capital to inferior land, must
elevate rent on the superior land ; the cause of
rent b&ing, as stated by Mr. Malthus in his
third proposition, " the comparative scarcity of
tlie most fertile land.'* The price of com will
naturally rise with the difficulty of producing
the last portions of it, and the value of the whole
quantity produced on a particular farm will
be increased, although its quantity be diminished ;
but as the cost of production will not increase on
the more fertile land, as wages and profits
taken together will continue always of the same

CHAP. XXXII.J OPINIONS ON RENU 491

value *, it is evident that the excess of price above
the cost of production, or, in other words, rent
must rise with the diminished fertility of the land,
unless it is counteracted by a great reduction of
capita], population, and demand. It does not ap-
pear tlien, that Mr. Malthus's proposition is correct :
rent does not immediately and necessarily rise or
fall with the increased or diminished fertility of the
land ; but its increased fertility renders it capable
of paying at some future time an augmented rent.
Land possessed of very little fertility can never
bear any rent ; land of moderate fertility may be
made, as population increases, to bear a moderate
rent ; and land of great fertility a high rent ; but
it is one thing to be able to bear a high rent, and
another thing actually to pay it. Rent may be
lower in a country where lands are exceedingly
fertile than in a country where they yield a moder-
ate return, it being in proportion rather to relative
than absolute fertility — to the value of the produce,
and not to its abundancet.

* See page 120, where I have endeavoured to shew, that
whatever facility or difficulty there may be in the production of
com ; wages and profits together will be of the same value.
When wages rise, it is always at the expense of profits, and
when they fall, profits always rise.

f Mr. Malthus has observed in il late publication, that I have
nisuoderstood him in this passage, as he did not mean to say*
that rent immediately and necessarily rises and falls with the

increased

494 MR. MALTHU8*S (]CHAP. 3

Mr. Malthus supposes that the rent on land
yielding those peculiar products of the earth which
may be called natural and necessary monopolies, is
regulated by a principle essentially different from
that which regulates the rent of land that yields
the necessaries of life. He thinks that it is the
scarcity of the products of the first which is the
cause of a high rent, but that it is the abundance
of the latter, which produces the same effect.

This distinction does not appear to me to be
well founded ; for you would as surely raise the
rent of land yielding scarce wines, as the rent of
com land, by increasing the abundance of its pro-
duce, if, at the same time, the demand for this pe-
culiar commodity increased ; and without a similar
increase of demand, an abundant supply of com
would lower instead of raise the rent of com land.
Whatever the nature of the land may be, high rent
must depend on the high price of the produce ; but,
given the high price, rent must be high in propor-
tion to abundance and not to scarcity.

increased or diminidied fertility of the land. If so, I certainlj
did misunderstand him. Mr. Malthus*s words are, ** Diminish
this plenty, diminish the fertility of the soil, and the exoem
(rent) will diminish ; diminish it still further, and it will disap-
pear.'* Mr. Malthus does not state his proposition conditionally,
bill absolutely. I contended against what I understood lum to
maintain, that a diminution ci the fertility of the aoiJ was in*
oompatible with an increase of rent.

CHAP. XXXII .3 OPINIOKfi ON RENT. 498

We are under no necessity of producing per-
manently any greater quantity of a commodity than
that which is demanded. If by accident any
greater quantity were produced, it would fall below
its natural price, and therefore would not pay the
cost of production, including in that cost the usual
and ordinary profits of stock : thus the supply
would be checked till it conformed to the demand,
and the market price rose to the natural price.

Mr. Malthus appears to me to be too much in-
clined to think that population is only increased by
the previous provision of food, — << that it is food
that creates its own dem*and," — that it is by first
providing food, that encouragement is given to
marriage, instead of considering that the general
progress of population is affected by the increase
of capital, the consequent demand for labour, a^d
the rise of wages ; and that the production of food
is but the effect of that demand.

It is by giving the workmen more money, or
any other commodity in which wages are paid, and
which has not fallen in value, that his situation is
improved. The increase of population, and the
increase of food will generally be the effect, but
not the necessary effect of high wages. The
amended cimdition of the labourer, in consequence
of the increased value which is paid him, does not
necessarily oblige him to marry and take upon hin)-
self the charge of a family — he will, in all proba-

494 MR* M ALTHUS'S [CHAP. XXXII.

bility, employ a portion of his increased wages in
furnishing himself abundantly with food and neces-
saries,— but with tlie remainder he may, if it please
him, purchase any commodities that may contribute
to his enjoyments — chairs, tables, and hardware
or better clothes, sugar, and tobacco. His increased
wages then will be attended with no other effect
than an increased demand for some of those com-
modities ; and as the race of labourers will not be
materially increased, his wages will continue per-
manently high. But although this might be the
consequence of high wages, yet so great are the
delights of domestic society, that in practice it is
invariably found that ah increase of population
follows the amended condition of the labourer ;
•and it is only because it does so, that, with the
trifling exception already mentioned, a new and
increased demand arises for food. This demand
then is the effect of an increase of capital and po-
pulation, but not the cause — it is only because the
expenditure of the people takes this direction, that
the market price of necessaries exceeds the natural
price, and that the quantity of food required is
produced ; and it is because the number of people
is increased, that wages again fall.

What motive can a farmer have to produce
more com than is actually demanded, when the
consequence would be a depression of its market
price below its natural price, and consequently
a privation to him of a portion of his profits, by

CHAP. XXXII.^ OPINIONS ON lt£KT. 495

reducing them below the general rate? ^* If/'
says Mr. Malthus, << the necessaries of life, the
most important products of land, had not the
property of creating an increase of demand pro-
portioned tQ their increased quantity, such increased
quantity would occasion a fall in their exchange-
able value*. However abundant might be the
produce of the country, its population might re-
main stationary; and this abundance without a
proportionate demand, and with a very high com
price of labour, which would naturally take place
under these circumstances, might reduce the price
of raw produce, like the price of manufactures, to
the cost of production/*

Might reduce the price of raw produce to the
cost of production. Is it ever for any length of
time either above or below this price ? Does not
Mr. Malthus himself, state it never to be so ? '* I
hope,'* he says, "to be excused for dwelling a
little, and presenting to the reader, in various
forms, the doctrine, that com, in reference to the
quantity actually produced^ is sold at its necessary
price, like manufactures, because I consider it as a
truth of tlie highest importance, which has been
overlooked by the economists, by Adam Smith,

* or what increased quantity does Mr. Malthus speak ? Who
is to produce it ? Who can have any motive to produce it, be*
fore any demand exists for an additional quantity ?

496 )tt&* MALTUue's [chap. XXXIU

and all those writers, who have represented raw
produce as selling always at a monopoly price."

** Every extensive country may thus be con-
sidered as possessing a gradation of machines for
the production of corn and raw materials, in-
cluding in this gradation not only all the various
qualities of poor land, of which every territory
has generally an abundance, but thtf inferior
machinery which may be said to be employed
when good land is further and further forced for
additional produce. As the price of raw produce
continues to rise, these inferior machines are suc-
cessively called into action ; and as the price of
raw produce continues to fall, they are successively
thrown out of action. The illustration here used,
serves to shew, at once, the necesstiy of the actual
price of cam to the actual produce^ and the di^rent
effect which would attend a great reduction in the
price of any particular manufacture, and a great
reduction in the price of raw produce ♦.*•

• Inquiry, &c. " In all progressive countries, the average
price of corn Is never higher than what Is necessary to continue
the average iAcrease of produce." Observations, p. 21.

" In the enaployment of fresh capital upon die land, to pro-
vide for the wants of an increasing population, whether this
fresh capital is employed in bringing more land under the plough,
or improving land already in cultivation, the main question
always depends upon the expected returns of this capital ; and

CHAP. XXXII.] OPINIONS ON RENT. 497

How are these passages to be reconciled to that
which affirms, that if the necessaries of life had <
not the property of creating an increase of demand
proportioned to their increased quantity, the abun-
dant quantity produced would then, and then only,
reduce the price of raw produce to the cost of
production ? If com is never under its natural
price, it is never more abundant than the actual
population require it to be for their own consump-
tion ; no store can be laid up for the consumption
of others ; it can never then by its cheapness and
abundance be a stimulus to population. In pro-
portion as com can be produced cheaply, the in-
creased wages of the labourers wiU have more
power to maintain families. In America, popula-
tion increases rapidly, because food -can be pro-
duced at a cheap price, and not because an abun-
dant supply has been previously provided. In Eu-
rope population increases comparatively slowly,
because food cannot be produced at a cheap value.

no part of the gross profits can be diminished, without dimi-
nishing the motive to this mode of employing it. Every dimi-
nution of price, not fully and immediately balanced by a pro-
portionate fall in all the necessar)' expenses of a farm, every
tax on the land, every tax on fartning stock, every tax on the
PQf^essaries of farmers, will tell in the computation ; and if, after
all these outgoings are allowed fur, the price of the produce
will not leave a fair remuneration for the capital employed,
according to the general rate of profits, and a rent at least equal
to the rent of the land in its former state, no sufficient motive
can exist to undertake the projected improvement.*' Obser-
vations, p. 22. -

K K

498 MB. MALTHUS'S fCHAP. XXXII.

In the usual and ordinary course of things, the
demand for all commodities precedes their supply.
By saying, that- com would, like manufactures,
^nk to its price of production, if it could not raise
up demanders, Mr. Malthus cannot mean that all
rent would be absorbed ; for he has himself justly
remarked, that if dl rent were given up by the
landlords, com would not fall in price ; rent being
the eifect, and not the cause of high price, and
there being always one quality of land in cultiva-
tion which pays no rent whatever, the com from
whidi replaces by its price, only wages and profits.

In the following passage, Mr. Malthus has given
an able exposition of the causes of the rise in the
price of raw firoduce in rich and progressive coun-
tries, in every word of which I concur; but it"
appears to me to be at variance with some of the
propositions maintained by him in his Essay on
Rent. ^* I have no hesitation in stating, that, in-
dependently of the irregularities in the currency of
a country, and other temporary and accidental dr-
camstances, the cause of the high comparative
money price of com is its high comparative real
pricey or the greater quantity of capital and labour
which must be employed to produce it ; and that
the reasons why the real price of corn is higher,
and continually rising in countries which are al-
ready rich, and still advancing in prosperity and
population, is to be found in the necessity of re-
sorting constantly to poorer land, to machined

CHAP. XXXII.] OPINIONS ON RENT." 499

which require a greater expenditure to work them,
and which consequently occasion each fresh addi-
tion to the raw produce of the country to be pur-
chased at a greater cost ; in short, it is to be found
in the important truth, that corn in a progressive
country, is sold at a price necessary to yield the ac^
tual supply; and that, as this supply becomes more
and more difficult, the price rises in propoitioh."

The real price of a commodity is here properly
stated to depend on the greater or less quantity of
labour and capital (that is, accumulated labour)
which must be employed to produce it. Real
price does not, has some have contended, depend
on money value ; nor, as others have said, on value
relatively to corn, labour, or any other commodity
taken singly, or to all commodities collectively;
but, as Mr. Malthus justly says, " on the greater
(or less) quantity of capital and labour which must
be employed to produce it."

Among the causes of the rise of rent, Mr.
Malthus mentions, ^* such an increase of population
BS will lower the wages of labour." But if, as the
wages of labour fall, the profits of stock rise, and
tfcey be together always of the same value*, no
fall of wages can raise rent, for it will neitbef
diminish the portion, nor the value of the portion

* See p. 121.

K K 2

500 MR. MALTHUS'S [^CHAP. XXXII.

of the produce which will be allotted to the Gunner
and labourer together ; and, therefore, will not leave
a larger portion, nor a larger value for the landlord.
In proportion as less is appropriated for wages,
more will be appropriated for profits, and vice versa.
This division will be settled by the fanner and his
labourers, without any interference of the landlord;
and, indeed, it is a matter in which he can liave no
interest, otherwise than as one division may be
more favourable than another, to new- accumula-
tions, and to a further demand for land. If wages
fell, profits, and not rent, would rise. If wages
rose, profits, and not rent, would faU. The rise of
rent and wages, and the fall of profits, are gene-
rally the inevitable efiects of the same cause — the
increasing demand for food, the increased quantity
of labour required to produce it, and its conse-
quently high price. If the landlord were to forego
his whole rent, the labourers would not be in the
least benefited. If it were possible for the labourers
to give up their whole wages, the landlords would
derive no advantage from such a circumstance;
but in both cases the farmer would receive and
retain all which they relinquish. It has been my
endeavour to shew in this work, that a fall of
wages would have no other efifect than to raise
profits. Every rise of profits is favourable to the
accumulation of capital, and to the further increase
of population, and therefore would, in all proba*
bility, ultimately lead to an increase of renL

CHAP. XXXII.3 OPINIONS ON RENT. 501

Another cause of the rise of rent, according to
Mr. Malthus, is <* such agricultural improvements,
or such increase of exertions, as will diminish the
number of labourers necessary to produce a given
effect.'' To this passage I have the same objec-
tion that I had against that which speaks of the
increased fertility of land being the cause of an
immediate rise of rent. Both the improvement in
agriculture, and the superior fertility will give to
the land a capability of bearing at some future
period a higher rent, because with the same price
of food there will be a great additional quantity ;
but till the increase of population be in the same
proportion, the additional quantity of food would
not be required, and, therefore, rents would be
lowered and not raised. The quantity that could
under the then existing circumstances be con-
sumed, could be furnished either with fewer hands,
or with a less quantity of land, the price of raw pro-
duce would fall, and capital would be withdrawn
from the land*. Nothing can raise rent^ but a
demand for new land of an inferior quality,, or
some cause which shall occasion an alteration in
the relative fertility of the land already under
cultivation t. Improvements in agriculture, and

• See p. 73, Ac.

t It 18 not necessary to state, on every occasion, but it must
be always understood, that the same results will follow, as far as
regards the price of raw produce and the rise of rents, whether
an additional capital of a given amount; be employed on new land,

^or

a02 MR. MALTHUS'S f CHAP. XXXII.

m the division of labour, are common to all land;
they increase the absolute quantity of raw pro-
duce obtained from each, but probably do not
much disturb the relative proportions which before
existed between them.

Mr. Malthus has justly commented on the error
of Dr. Smith's argument, that com is of so peculiar
a nature, that its production cannot be encouraged
by the same means that the production of all other
commodities is encouraged. He observes, •* It is

for which no rent is paid, or on land already in cultivation, if
the produce obtained from both be precisely the same in quan*
tity. See p. 60.

M. Say, ui his notes to the French translation of this wof^,
has endeavoured to shew that there is not at any time land in ciil^
tivation which does not pay a rent, and havii^ satisfied himadf
on this point, he concludes that he has overturned ail the con*
elusions which result from that doctrine. He inferi, for ez«
ample, that I am not correct in saying that taxes on com, and
other raw produce, by elevating their price, fall on the con-
sumer, and do not fall on rent. He contends that such taxes
must fall on rent. But before M. Say can establish the oori^d-
ness of this inference, he must also shew that there is not any
capital enrployed on the land for which no rent is paid (see the
beginning of this note, and pages 53 and 6S of the present work);
now this he has not attempted to do. In no part of his notes has
he refuted, or even noticed that important doctrine. By his
note to page 182 of the second volume of the French editioay
he does not appear to be aware that it lias even been ad-
vanced.

CHAP. XXXII.] OPINIONS ON RENT. 503

by no means intended to deny the powerful in-
fluence of the price of com upon the price of labour,
on an average of a considerable nuxnber of years ;
but that this influence is not such as to prevent the
movement of capital to, or from the land, which is
tlie precise point in question, will be made suffi-
ciently evident,, by a short inquiry into the manner
in which labour is paid, and brought into the
market, and by a consideration of the consequences
to which the assumption of Adam Smith's proposi-
tion would inevitably lead *•"

Mr. Malthus then proceeds to shew, that de-
mand and high price will as effectually ehcoura^
the production of raw produce, as the demand and
high price of any other commodity will encourage
. its production. - In this view it will be seen, from
what I have said of the efiects of bounties, that I
entirely concur. I have noticed the passage from
Mr. Malthus's " Observations on the Com Laws,"
for the purpose of shewing in what a different sense
the term real price is used here, and in his other
pamphlet, entitled " Grounds of an Opinion,** &p.
In this passage Mr. Malthus tells us, that <^ it is
clearly an increase of real price alone which can
encourage the production of com," and, by real
price, he evidently means the increase in its value
relatively to all other things ; or, in other words, the
rise in its market above its natural price, or the cost

* Obser.Yations on tiic Corn Laws, p. 4.

504f MR. MALTHUS'S [CHAP. XXXU.

of its production. If by real price this is what is
meant, although I do not admit the propriety of
thus naming it, Mr. Malthus's opinion is undoubt-
edly correct; it is the rise in the market price of
com which alone encourages its production ; for it
may be laid down as a principle uniformly true,
that the only great encouragement to the increased
production of a commodity, is its market value ex-
ceeding its natural or necessary value.

But this is not the meaning which Mr. Malthus,
on other occasions, attaches to the term, real price-
In the Essay on Rent, Mr. Malthus says, by " the
real growing price of com, I mean the real quantibf
of labour and capital, which has been employed to
produce the last additions which have been made
to the national produce." In another part he states
" the cause of the high comparative real price of
com to be the greater quantity of capital and labour,
* which must be employed to produce it •." Suppose
that in the foregoing passage we were to substitute
this definition of real price, would it not then ran
thus ? — " It is clearly the increase in the quantity
of labour and capital which must be employed to

* Upon shewing this passage to Mr. Malthus, at the time
when these papers were going to the press, he observed, " that m
these two instances he had inadvertently used the term realpnee^
instead of cost of production. It will be seen, from what I have
already said, that to me it appears, that in these two instances
he has used the term real price in its true and just acceptation,
and that in the former case tnly it is incorrectly applied.

CHAP. XXXII.] OPmiONS ON RENT. . 505

produce corn, which alone can encourage its pro-
duction." This would be to say, that it is clearly
the rise in the natural or necessary price of corn,
which encourages its production — b, proposition
which could not be maintained. It is not the price
at which com can be produced, that has any in-
fluence on the quantity produced, but the price at
which it can be sold. It is in proportion to the
degree of the difference of its price above or below
the cost of -production, that capital is attracted to,
or repelled from the land. If that excess be such
as to give to capital so employed, a greater than
the general profit of stock, capital will go to the
land J if less, it will be withdrawn from it.

It is not, then, by an alteration in the real price
of corn that its production is encouraged, but by
an alteration in its market price. It is not " be-
cause a greater quantity of capital and labour must
be employed to produce it, (Mr. Malthus's just de-
finition of real price,) that more capital and labour
are attracted to the land, but because the market
price rises above this its real price, and, notwith-
standing the increased charge, makes the culti-
vation of land the more profitable employment of
capital.**

Nothing can be more just than the following
observations of Mr. Malthus, on Adam Smith's
standard of value. ** Adam Smith was evidently

506 MR* MALTHUS'S |[CHAP, XK7LIU

led into this train of argument, from his habit <^
considering labour as the standard measure qfudue^
and com as the measure of labour. But that corn
is a very inaccurate measure of labour, the history
of our own country will amply demonstrate ; where
labour, compared with corn, will be found to have
experienced very great and striking variations, not
only from year to year, but from century to cen-
tury ; and for ten, twenty, and thirty years together.
And that neither labozir nor any other commodity can
be an accurate measure of real value in exchange^ is
now considered as one of the most incontrovertible
doctrines of pohtical economy; and, indeed, fal-
lows from the very definition of value in exchange*'*

If neither com nor labour are accurate measures
of real value in exchange, which they clearly are
not, whatother commodity is?— -certainly none. If,
then, the expression, real price of commodities, have
any meaning, it must be that which Mr. Madthus
has stated in the Essay on Rent — it must be mea^
sured by the proportionate quantity of capital and
labour necessary to produce them.

In Mr. Malthus's " Inquiry into the Nature of
Rent,*' he says, " that, independentiy of irregular-
ities in the currency of a country, and other tern-
porary and accidental circumstances, the cause of
the high comparative money price of com, is its
high compaiative real price, or the greater quatUibf

CHAF« XXXU.3 OPINIONS ON RENT. 507

qf capital and labour which must be employed to pro*
duce it*.''

This, I apprehend, is the correct account of all
permanent variations in price, whether of com or
of any other commodity* A commodity can only
permanently rise in price, either because a greater
quantity of capital and labour must be employed to
produce it, or because money has fallen in value ;
and, on the contrary, it can only fall in price, either
because a less quantity of capital and labour may
be employed to produce it, or because money has
ris^n in value.

A variation arising from the latter of these alter-
natives, an altered value of money, is common at
once to all commodities; but a variation arising
from the former cause, is confined to the particular
commodity requiring more or less labour in its pro-
duction. By allowing the free importation of com,
or by improvements in agriculture, raw produce
would fall; but the price of no other commodity
would be affected, except in proportion to the fall
in the real value, or cost of production, of the raw
produce, which entered into its composition.

Mr. Malthus, having acknowledged this princi-
ple, cannot, I think, consistently maintain that the
whole money value of all the commodities in the

rage iO.

508 MR. MALTHUS'S ^CHAP. XXXII.

country must sink exactly in proportion to the faU
in the price of corn. If the com consumed in the
country were of the value of ten millions per an-
num, and the manufactured and foreign com-
modities consumed were of the value of twenty
millions^ making altogether thirty millions, it would
not be admissible to infer that the annual expen-
diture was reduced to 15 millions, because com
had fallen 50 per cent., or from 10 to 5 millions. ,

The value of the raw produce which entered into
the composition of these manufactures might not,
for example, exceed 20 per cent, of their whole
value, and, therefore, the fall in the value of manu-
factured commodities, instead of being from 20 to
10 millions, would be only from 20 to 18 millions ;
and after the fall in the price of com of 50 per
cent., the whole amount of the annual expenditure
instead of falling from 30 to 15 millions, woidd fell
from SO to 23 millions*.

This, I say, would be their value, if you sup-
posed it possible, that with such a cheap price of
corn, no more corn and commodities would be con-
sumed ; but as all those who had employed capital

* Manufactures, indeed, could not fall in any such proportiaii,
because, under the circumstances supposed, there would be anew
distribution of the precious metals among the different countries*
Our cheap commodities would be exported in exchange for corn
and gold, till the accumulation of gold should lower its ralue,
and raise the money price of commodities.

CHAP. XXXIlT] OPINIONS ON RENT. 509

in the production of com on those lands which
would no longer be cultivated, could employ it in
the production of manufactured goods ; and only a
part of those manufactured goods would be given
in exchange for foreign corn, as on any other sup-
position no advantage would be gained by importa-
tion, and low prices ; we should have the additional
value of all that quantity of manufactured goods
which were so produced, and not exported to
add to the above value, so that the real diminution,
even in money value, of all the commodities in
the country, com included, would be equal only to
the loss of the landlords, by the reduction of their
rents, while the quantity of objects of enjoyment
would be greatly increased.

Instead of thus considering the effect of a fall in
the value of raw produce ; as Mr. Malthus was
bound to do by his previous admission ; he con-
siders it as precisely the same thing as a rise of
100 per cent, in the value of money, and, therefore,
ai^ues as if all commodities would sink to half their
former price.

" During the twenty years beginning with 1794,"
he says, "and ending with 1813, the av^ge price
of British com per quarter was about eighty-three
shillings; during the ten years ending with 1813,
ninely-two shillings ; and during the last five years
of the twenty, one hundred and eight shillings. In
the course of these twenty years, the Government

510 MR. MALTHUS*S LCHAP. XXXir.

borrowed near five hundred millions of real capital ;
for which, on a rough average, exclusive of the
sinking fund, it engaged to pay about five per cent*
But if com should fall to fifty shilUngs a quarter,
and other commodities in proportion, instead of an
interest of about five per cent., the Grovemment
would really pay an interest of seven, eight, nine,
and for the last two hundred millions, ten per
cent.

" To this extraordidary generosity towards the
stockholders, I should be disposed to make no kind
of objection, if it were not necessary to consider by
whom it is to be paid ; and a moment's reflection
will shew us, that it can only be paid by the indus-
trious classes of society, and the landlords; that is,
by all those whose nominal income vrill vary with
the variations in the measure of value. The no-
minal revenues of this part of the society, compared
with the average of the last five years, will be di-
minished one half, and out of this nominally reduced
income, they will have. to pay the same nomiftal
amount of taxes*."

In the first place, I think, I hav0 already shewn,
that even the value of the gross income of the whole
country will not be diminished in the proportion
for which Mr. Malthus here contends; it would not
follow, that because com fell fifty per cent., each

« The Grounds of an Opioioii^ Sec. page'96«

C*fAP, XXXII,3 OPINIONS ON RENT. 511

man*s gross income would be reduced fifty per cent,
in value* ; his net income might be actually in-
creased in value.

In the second place, I think the reader will
agree with me, that the increased charge, if ad-
mitted, would not fall exclusively " on the land-
lords and the industrious classes of society :*' the
stockholder, by his expenditure, contributes his
share to the support of the public burdens in the
same way as the other classes of society. If, then,
money became really more valuable, although he
would receive a greater value, he would also pay a
greater value in taxes, and, therefore, it cannot be
true that the whole addition to the real value of the
interest would be paid by " the landlords and the
industrious classes/*

The whole argument, however, of Mr. Malthus,
is built on an infirm basis : it supposes, because
the gross income of the country is diminished, that,
therefore, the net income must also be diminished,
in the same proportion. It has been one of the ob-
jects of this work to shew, that with every fall in
the real value of necessaries, the wages of labour
would fall, and that the profits of stock would rise —
in other words, that of any given annual value a
less portion would be paid to the labouring class,
and a larger portion to those whose funds employed

f Mr. Malthus, in another part of the same work, supposes
commodities to vary 25 or 20 per cent, when com varies 33^.

512 MR. MALTHUS'S fCHAP. XXXII.

this class. Suppose the value of tlie commodities
produced in a particular manufacture to be lOOO/.,
and to be divided between the master and his
labourers, in the proportion of 800i to labourers,
and 200^ to the master ; if the value of these com-
modities should fall to 900iL, and 100/. be saved
from the wages of labour, in consequence of the
fall of necessaries, Uie net income of the masters
would be in no degree impaired, and, therefore, he
could with just as much facility pay the same
amount of taxe's, afler, as before the reduction of
price*.

It is of importance to distinguish clearly between
gross revenue and net revenue, for it is from the
net revenue of a society that all taxes must be paid.
Suppose that all the commodities in the country,
all the corn, raw produce, manufactured goods,
&c. which could be brought to market in the
course of the year, were of the value of 20 mil-
lions, and that in order to obtain this value, the la-
bour of a certain number of men was necessary, and

* Of net produce and gross produce, M. Sdy speaks as fol-
lows : *' The whole value produced is tlie gross produce ; this
value, after deducting from it the cost of production, is the
net produce.*' Vol. II. p. 491. There can then be no net
produce, because the cost of production, according to M.
Say, consists of rent, wages, and profits. In page 503, he
says, ** The value of a product, the value of a productive
service, the value of the cost of production, are all then
similar values, whenever things are left to their natural course.**
Take a whole from a whole, and nothing remains.

CHAP* XXjn.2 OPINIONS ON RENT. 513

that the absolute necessaries of these labourers re«
quired an expenditure of 10 . millions. I should
say that the gross revenue of such society was,
20 millions, and its net revenue 10 miUions. It
does not follow from thj^ supposition, that the
labourers should receive only 10 millions for their
labour; they might receive 12, 14, or 15 millions,
and in that case they would have 2, 4, or 5 millions
of. the net income. The rest would be divided
between landlords and capitalists ; but the whole
net income would not exceed 10 millions. Sup*
pose such a society paid 2 millions in taxes, its net
income would be reduced to 8 millions.

Suppose now money to become more valuable
by one-tenth, all commodities would fall, and the
price of labour would fall, because the absolute
necessaries of the labourer formed a part of those
commodities, consequently the gross income would
be reduced to 18 millions, and the net income to
9 millions. If the taxes fell in the same propor**
fjon, and, instead of 2 millions, 1,800,000/. only
were raised, the net income would be further re^
duced to 7,200,000/., precisely of the same value as
the 8 millions were before, and therefore the so*
ciety would neither be losers nor gainers by such
an event. But suppose that after the rise of mo-
ney, 2 millions were raised for taxes as before, the
society would be poorer by 200,000/. per annumi
their taxes would be really raised one-ninth. To
alter the money value of commodities, by altering

L L

514 MR. MALTHUS's fCHAP. XXXII.

the value of money, and yet to raise the same mo-
ney amount by taxea, is then undoubtedly to in-
crease the burthens of society.

But suppose of the 10. millions net revenue, the
landlords received five millions as rent, and that
by facility of production, or by the importation of
corn, the necessary cost of that article in labour
was reduced 1 million, rent would fall 1 milliqn,
and the prices of the mass of commodities would
also fall to- the same amount, but the net re-
venue would be just as great as before ; the gross
income would, it is true, be only 19 millions,
and the necessary expenditure to obtain it 9 mil-
lions, but the net income would be 10 mil-
lions. Now suppose Q millions raised in taxes on
this diminished gross income, would the society
altogether be richer or poorer? Richer, certainly ;
for after the payment of their taxes, they would
have, as before, a clear income of 8 millions to be-
stow on the purchase of commodities, which had
increased in quantity, and fallen in price, in the
proportion of 20 to 19; not only then could the
same taxation be endured, but greater, and yet the
mass of the people be better provided with conve-
niences and necessaries.

If the net income of the society, after paying the
same money taxation, be as great as before, and
the class of landholders lose 1 million from a fall
of rent, the other productive classes must have in-

CHAP. XXXTI,^ OPINIONS ON R£KT. 515

creased money incomes, notwithstanding the fell of
prices. The capitalist will then be doubly bene-
fited; the corn and butcher's meat consumed by
himself and his family will be reduced in price; and
the wages of his menial servants, of his gardeners,
and labourers of all descriptions, will be also lower-
ed. His horses and cattle will cost less, and be sup-
ported at a less expense. All the commodities in
which raw produce enters as a principal part of
their value, will fell. This aggregate amount of
savings, made on the expenditure of income, at
the same time that his money income is increased,
will then be doubly beneficial to him, and will
enable him not only to add to hifi enjoyments, but
to bear additional taxes, if they should be required :
his additional consumption of taxed commodities
will much more than make op for the diminished
demand of landlords, consequent on the reduction
of their rents. The same observations apply to
farmers and traders of every description.

But it may be said, that the capitalist's income
will not be increased ; that the million deducted
from the landlord's rent, will be paid in additional
wages to labourers ! Be it so ; this will make no
difference in the argument : the situation of the so-
ciety will be improved, and they can bear the same
money burthens with greater facility than before ;
it will only prove what is still more desirable, that
the situation of another class, and by far the most
important class in society, is the one which is

516 MR. MALTHUS'S [CHAP. XXXIIr

chiefly benefited by the new distribution. All that
they receive more than 9 millions, forms part of the
net income of the country, and it cannot be ex-
pended without adding to its revenue, its happiness,
or its power. Distribute then the net income as
you please. Give a little more to one class, and a
little less to another, yet you do not thereby dimi-
nish it ; a greater amount of commodities will be still
produced with the same labour, although the amount
of the gross money value of such commodities will
be diminished ; but the net money income of the
country, that fund from which taxes are paid and
enjoyments procured, would be much more ade-
quate; than before, to maintain the actual popula-
tion, to afford it enjoyments and luxuries, and to
support any given amount of taxation.

That the stockholder is benefited by a great fall
in the value of com, cannot be doubted ; but if no
one else be injured, that is no reason why com
should be made dear : for the gains of ~ the stock-
holder are national gains, and increase, as all other
gains do, the real wealth and power of the country.
If they are unjustly benefited, let the degree in
which they are so, be accurately ascertained, and
then it is for the legislature to devise a remedy; but
no policy can be more unwise than to shut our*
selves out from the great advantages arising from
cheap corn, and abundant productions, merely be-
cause the stockholder would have an undue pro*
portion of the increase.

PHAP. XXXUO OPINIONS ON RENT. 517

To regulate the dividends on stock by the money
value of com, has never yet been attempted. . If
justice and good faith required such a regulation,
a great debt is due to the old stockholders ; for they
have been receiving the same money dividends for
more than a century, although com has, perhaps,
been doubled or trebled in price*.

But it is a great mistake to suppose, that the
situation of the stockholder will be more improved
than that of the farmer, the manufacturer, and the
other capitalists of the country ; it will, in fact, be
less improved.

The stockholder will undoubtedly receive the
same money dividend, while not only the price of
raw produce, and labour fell, but the prices of
many other things into which raw produce entered
as a component part. This, however, is an advan-
tage, as I have just stated, which he would enjoy
in common with all other persons who had the same
money incomes to expend : — his money income
would not be increased ; that of the farmer, manu-
facturer and other employers of labour would, and
consequently they would be doubly benefited.

* Mr. M'CuUoch, in an able publication, has very strongly
contended for the justice of making the dividends on the national
debt conform to the reduced value of corn. He is in favour of
a free trade in corn, but he thinks it should be accompanied by
a reduction of interest to the national creditor.

518 MR* MALTHUS'S fcHA^. XXXfl.

It may be said, that although it may be true that
capitalists would be benefited by a rise <^ profits;
in consequence of a fall of wages, yet that their in-
comes would be diminished by the fall in the money
value of their commodities. What is to lower them?
Not any alteration in the value of mon^, for no-
thing has been supposed to occur to alter the value
of money. Not any diminution in the quantity of
labour necessary to produce their commodities^ for
no such cause has operated, and if it did operate
would not lower money profits, thcmgh it might
lower money prices. But the raw produce of which
commodities are made, is supposed to have fallen
in price, and, therefore, commodities will fall on
that account. True, they will faU, but their fall will
not be attended with any diminution in the money
income of the producer. If he sell his commodity
for less -money, it is only because one of the
materials from which it is made has fallen in value*
If the clothier sell his cloth for 900/. instead of
1000/., his income vdll not be less, if the wool firom
which it is made, has declined 100/. in value.

Mr. Malthus says^ ^* It is true, that the last ad-'
ditions to the agricultiu*al produce of an improving
country, are not attended with a large propoY-
tion of rent ; and it is precisely this circumstance
that may make it answer to a rich country to im-
port some of its com, if it can be secure of obtain-
ing an eq\iable supply. But in all cases the

CriAP. XXXn.] 6PINIONS ON RENT. 519

importation of foreign com must fail to answer
nationally, if it is not so much cheaper than the com
that can be grown at home» as to equal both the
profits and the rent of the grain which it displaces.*'
GroundSf <§r. p. 36.

In this observation Mr. Malthus is quite correct;
but imported com tntist be always so much cheaper
than the corn that can be grown at home, " as to
equal both the profits and the rent of the grain
which it displaces." If it were not, no advantage
to any one could be obtained by importing it.

As rent is the effect of the high price of corn,
the loss of rent is the effect of a low price. Fo-
reign com never enters into competition with such
home com as affords a rent ;. the fall of price inva-
riably afiects the landlord tilLthe whole of his rent
is absorbed ; — if it fall still more, the price will not
afford even the common profits of stock ; capital
will then quit the land for some other employment,
and the com, which was before grown upon it, will
then, and not till then, be imported. From the
' loss of rent, there will be a loss of value, of esti-
mated money value, but, there will be a gain of
wealth. The amount of the raw produce and other
productions together will be increased ; from the
greater facility with which they are produced, they
will, though augmented in quantity, be diminished
in value.

520 MR. MALTHUS'S [^CHAP. XXXII^

Two men employ equal capitals— one in agricul-
ture, the other in manufactures. That in agricul-
ture produces a net annual value of 1200/. of which
1000/. is retained for profit, and 200/. is paid for
rent ; the other in manufactures produces only an
annual value of 1000/. Suppose that by importa-
tion, the same quantity of com which cost 1300L
can be obtained for commodities which cost 950/.,
and that, in consequence, the capital employed in
agriculture is diverted to manufactures, where it
can produce a value of 1000/., the net revenue of
the country will be of less value, it will be reduced
from 2200/. to 2000/. ; but there will not only be
the same quantity of commodities and com for its
own consumption, but also as much addition to
that quantity as 50/. would purchase, the differ-
ence between the value at which its manufactures
were sold to the foreign country, and the value of
the corn which was purchased from it.

Now this is precisely the question respecting the
advantage of importing, or growing com ; it never
can be imported till the quantity obtained from
abroad by the* employment of a given capital ex-
ceeds the quantity which the same capital will
enable us to grow at home,— exceeds not cmly that
quantity wliich falls to the share of the farmer, but
also that which is paid as rent to the landlord.

Mr. Malthus says, " It has been justly observed
by Adam Smith, that no equal quantity of produc-

CHAP. XXXII.] OPINIONS ON RENT. 521

tive labour employed in manufactures can ever
occasion so great a reproduction as in agriculture.''
If Adam Smith speaks of value, he is correct ; but
if he speaks of riches, which is the importapt point,
he is mistaken ; for he has himself defined riches
to consist of the necessaries, conveniences, and en-
joyments of human life. One set of necessaries
and conveniences admits of no comparison with
another set ; value in use cannot be measured by
any known standard ; it is difierently estimated by
different persons.

INDEX.

ACCUMULATION of capital, eflfects of, on profiu and
interest, 338— 353,

Agriculture^ effects of improvements in, on rents, 69 — 73. Im-*
portance of them, 72, note. Is affected by the distress pro-
ceeding from sudden revulsions of trade, 311 — 319. Agri-
cultural improvements, no cause of the increase of rent,
501,502.

Banks, establishment of, affects the sole power of the state in
coining money, 423, 424*. Consequence o£ the Bank of
England issuing too great a quantity of paper, 424. That
corporation can only be prevented from abusing its
power of issuing paper money, by compelling it to pay its
notes either in gold coin or bullion, 426 — 430. The as-
sistance given by the Bank of England to commerce, ac-
counted for, 437, 438. See Paper Currency*

Bounties, on the exportation of com, lower its price to the
foreign consumer, 354 — 362. Effects of a bounty in rais-
ing the price of com, illustrated, 362. Though such bounty
may cause a partial degradation in the value of money, yet
such degradation cannot be permanent, 365 — 368. Boun-
ties on the exportation of manufactures raise their market
but not their natural price,. 368 — ^370. The sole effect of
bounty is to divert a portion of capital to an employment
which it would not naturally seek, 371. Evils of such a
system, 371 — 376. A bounty on the production of corn.

524 INDEX.

will produce no real effect on the annual produce of the
land and labour of the country, though it would make c'om
relatively cheap, and manufactures relatively dear, 380 —
384. But the effect of a tax on com, in order to afford a
fund for a bounty on the production of commodities, would
be to enhance the price of corn, aod render commodities
cheap, 385, 386.
Buchanan (Mr.), observations of, on Adam Smith's doctrine of
productive and unproductive labour, 66, note. His examin-
ation of Smith's opinion concerning taxes upon the wages
of labour, 246, 247. Remarks thereon, 247—271. Re-
marks on his opinions respecting bounties on exportation,
372, 373.

Capital, effects of, in a savage or infant state of society, 16, 17,
20, 21, 22. And in a more advanced state of society, 18,
1 9. The relative value of circulating and^ed capitals con-
sidered, 26 — 28. Effects of employing machinery and other
durable and fixed capital, 29 — 35. The unequal durability
of capital, and the unequal rapidity witli which it is returned
to its employer, modifies the principle, that value does not
vary with the rise or fall of wages, 36 — 41. In what cases
capital 'creates rent, 58 — 60. The distinction between cir-
culating and fixed capitals difficult to be strictly defined,
162. Impolicy of taxes on capital, 163, 164. Governments
ought to encourage their people in a disposition to increase
their capitals, 166. Considerations on the different modes of
employing it, 55 — 60. The increase of capital in quantity
and value^ productive of a rise in the natural price of wages,
89, 90. Increase of capital in quantity only, productive of
a rise in the market price of wages, ibid. Impolicy of taxes
on the transfer of capital, 167> 168. Effects of a tax on the
profits of capital, 241, 242. Effects of the accumulation of
capital on profits and interest, 338 — 353. The sole effect
of bounties on exportation, upon capital, is to divert a por-
tion of it to an employment which it would not naturally

INDEX* 525

seek, 371. Remarks on such effect, 371 — 376. The in-
crease of circulating not of fixed capital, regulates the
demand for labour, 4*79. The profits made by the employ-
ment of capital, regulate the rate of interest for money,
436, 437.
Carrying trade, observations on, S45-~34'7.
Changes, sudden, in the channels of trade, considered, 307 — 319-
Circulation of money can never overflow, and why, 422, 423.

Circulation of paper, see Paper Currenci/.
Colonial 2\ade, observations on, 403. Proofs, that trade with
a colony may be so regulated as to be less beneficial to the
colony, and more beneficial to the mother country, than a
perfectly free trade, 404 — 407. Benefits of a colonial trade,
408—414.
Commodities, gold and silver an insufficient medium for deter-
mining the varying value of, 6. Corn, an inadequate
standard of the value oC 12. The different rewards of
labour of different qualities, no cause of variation in the re-
lative value of commodities, 13 — 15. The value of commo-
dities is affected not only by the labour applied immediaiely
to them, but also by the labour bestowed upon the imple-
ments, &c. with which such labour is assisted, 16 — ^25.
£ffects of a rise in wages on their value, 489 and of the
payment of rent, 49, 50. Their exchangeable value regu-
lated by the greater quantity of labour bestowed on their
production by those who labour under the most unfavour-
able circumstance, 5Q. The prices of commodities not ne-
cessarily increased by a rise in the price of labour, 95 — 97.
The cost of production regulates the price of commodities,
481, 499 — 505. Monopolized commodities vary in value,
and why, 465.
Consumers pay the tax on raw produce, not the grower, 170—

172.
Com, a variable standard for determining the varying value oif
• things, 6—9. Effects of the price of, on rent, 67,68. Corn-
rents materially affected by tithes, 196^ 197. And also
by taxes on raw produce, 171, 172. Effect of an increasing
demand of corn, on its price, 178—180. Advantage re-

5^K» INDEX,

suiting from tbe relative low price of com« 317« Bounties on
the exportation of it» lower its price to the foreign consumer,
554 — 362. Effects of a bounty in rising the price of com,
362. Effects of a prohibition of the Importation of com
considered, 368 — 371. A bounty on the production of,
productive of no real effect on the annual produce of the
land and labour of the country, 380 — 334>. The price of
com enhanced by a tax on it, in order to afford a fund for
a bounty on the production of commodities, SS5, 386. Be-
nefit of a high price of com to landlords, 4OQ9 401. Inves-
tigation of the comparative value of com, gold, and labour
in rich and in poor countries, 448—465. The production
of corn encouraged by alteration in its market price, 508 —
510. A fall in the value of com beneficial to the stock-
holder, 516 — 518. Statement of the question relative to
the importing or exporting of corn, 520.

CuhivoHony not discouraged by a tax on land and its produce,
206.

Currency. See Gold and Silver, Paper Currency.

Demand and supply, influence of, on prices, considered, 460.
Opinion of M. Say on this subject, 461, 462. And of the
Earl of Lauderdale, 462 — 464. Observations thereon,
464, 465. The demand for labour regulated bj the in-
crease of circulating, not of fixed capital, 479, note,

Economy in labour, reduces the relative value of commodi-
ties, 19. Illustration of this principle, 20^24.

Edinburgh Revietoers* mistake, on the influence of the price of
labour on manufactured commodities, considered* 356 — 358.

ExchangCy no criterion of the increased value of money, 156.
Utility essential to exchangeable value, 265 — 266. To.be
. ascertained by estimating the value of the currency in the
cusrency of another country, 157> and also by comparing
it with some standard common to both countries. 158^
161 • Effects of paper currency on exchange.

INDEX. 527

Exportation of corn, bounties on, lower its price to the foreign
consumer, SS^ — 362. Effects of, in raising the price of
corn, illustrated, 362. Bounties on the eioportation of
manufactures raise the market, but not the natuml, price
of these, 368— 371.

Farmers pay more poor-rate than the manufacturers, 303 — 306.

Benefit of taxing only their profits, 241.
Foreign Trade, effects of an extension of, 131* Proofs that

the profits of the favoured trade will speedily subside to

the general level, 132—138.
Freedom of Trade, importance of, to Great Britain, 326, and

note, 377.
Funded Property, the price of, no steady criterion by which to

judge of the rate of interest, 351 — 353. The holder of,

how far benefited by a great fall in the price of com, 516

—519.

Gold, and silver, an insufficient medium for determining the
variable value of commodities, 6 — 10, 11. But, upon the
wholCi the least inconvenient standard for money, 78, 79.
On whom a tax upon gold would ultimately fall, 215, 216*.
The value of gold ultimately regulated by the comparative
facility or difficulty of producing it, 217* Effects of a tax
upon gold, 218 — 225. The value of gold and silver pro-
portioned to the quantity of labour necessary to produce
them and bring them to market, 421. Remarks on the
employment of these metals in currency, 439, 440. Their
relative values at different periods, accounted for, 442— 447.
Investigation of the comparative value of gold, com, and
labour, in rich and in poor countries, 448 — 465.

Gross Revenue, advantages of, over-rated by Adam Smith, 415.
And by M. Say, ibid, note. Examination of this doctrine,
416—420. A diminution of gross income, no diminution
of net income, 510, 511*

528 INPEX.

Holland^ low rate of interest in, accounted for, 340, fu^c.

Housesy rents of, distinguished into two parts, 226, 227. Differ-
ence between rent of houses and that of land, 227, 22S.
Taxes on houses by whom ultimately borne, 229, 230.

Importation of corn, effects of a prohibition of, considered, 369

—371.

Jmprwements in agriculture, effects of, on rents, 69—73. Their
importance, 72, note. Effect of improvements in manufiu:-
tures, in the distribution of the precious metals, 143 — 150.

Interest, low rate of, in Holland, accounted for, 340, note.
Effects of accumulation on profits and interest, 338 — 350.
Observations on the rates of interest, 351 — 353. The in-
terest for money is regulated by the rate of profits which
can be made by the employment of capital, 436, 437.

Labour, the demand for, depends on the increase of circulating
not of fixed capital, 479, note. The quantity of, requisite
to obtain commodities, the principal source of their ex-
changeable value, 3, 4. Effects of machinery on, consider-
ed, 8, 9* Labour of different qualities, differently rewarded,
13. This no cause of variation in the relative value of
commodities, 14, 15. Economy in labour reduces the re-
lative value of a commodity, 19,20* Illustrations of this
principle, 20 — 24. The principle, that the quantity of
labour bestowed on the production of commodities, regu-
lates their relative value, is considerably modified by the
employment of machinery, and other fixed and durable
capital, 25 — 35. A<^^°^ Smith's theory of productive and
unproductive labour, considered, 64^-^6, no^e^. Natural
price of, explained, 87. Market price of, what, 87, 88.

INDEX. SM

hi mfltte&ee on the happineis of Ifae labourer, 8S. Influ-
ence of the sapplj and demand of UI>our on wages, 92 — 95.
Taxation of wages and of labour coniideredydiG — -280. In-
Testigation of the comparatiye value of labour, gold, and
com, in rich and poor countries, 448—465. Madiinery
in whM cases injurious to the labourer, 468 — 475. In-
terest of the labouring dasses, in the manner in which the
net income of the country is expended, 475—^8.
f, the division of the whole produce of, between landlords,
capitalists, and labourers, is the criterion of rent, profits,
and wagesy 49^52. Its different productive qw^ties, a
cause of rent, 55 — 57« Effects of increasing its productive
powers bj agricultural improvanents, 69 — 73. Adam
Smith's doctrine concerning the rent of land -conridered,

Luna&rd$9 tithes injurious to, 198, 199. Benefit of a high price
of com to them, 400, 401 .

lAnd4ax^ virtually a tax on rent, 201 . Effects of an equal land-
tax, imposed indiscriminately on all labd cultivated, 202 —
204. Error d Dr. Adam Smith, on the inequality of land
and all other taxe?, accounted for, 204 — ^206. Tax on
land and its produce, no bar to cultivation, 206. Opera-
don of the land-tax of Great Britain considered* 207.
Mistake of M. Say corrected, 206 — 218.

Lauderdale (Earl of), opinion of, the influence of demand
and supply on prices, 462^-464. Remarks thereon, 464,
465. Correction of his opinion on the inability of the
Bank to pay its notes in specie under the existing mint
regulatidn, 446,9io#e.

Loam to the State, observations on, 282—288, S52, note.

LuxurieSf taxes on, fall only on those who make use of them,
281. Observations on the taxing of, 268-*271* Advan-
tages and disadvantages of taxing them, considered, 278 —
280.

Maehimerif, effects of, on labour, 8, 9. The author's ./^rm^

views of, 466 468. His present views substan-

M M

5dO ' INDEX.

tiated by facu, that machinery ii often injariont to the
interests of labourers, 468-^75. A qwJ^Ud use of ma-
chinery vindicated, 478*-488«
Moby observations on the tax upon, 294^— -296.
Mabhtu (Mr.), examination of the opinions of, on rettt»48S-*
498. The real ^t of production regulates the price of
commodities, 499 — 505. Increase of p<^ulation no cause
of the rise of rent, 605, nor agricidtural in^rovements, MO.
His supposition, that net income is diminished, in propor-
tion to a diminution of gross income, disproved, 511 — ^518.
Loss of rent, the effect of a low price of com, 519.
Manufactitres, improvement of, in any country, tends to alter
the distribution of the precious metals among the nations of
the world, 143-^150. Manufacturers pay less poor-rate
than fanners, 803 — 306. The market price of manufac-
tures, but not their natural price, raised by bounties <m
their exportation, 368 — 370.
Mines, distinguished by their fertility or barrenness, 76, T7«
Effect of discovering the rich mines of America on the
price of the pi:pciQus metals, 78. Effect of improvements
in the working of them on the value of money, 156, 157*
Observations on the rent of mines, 76 — ^79.
Money, effects of the rise of the value of^ on the price of com-
modities, 47, 50. The rate of profit not affected by varia-
tions in the value of money, 51, 52. Different value of
money in different countries accounted for, 1552 — 155.
The value of money, generally^ diminished by improvemoitB
in the facility of working the mines of the precious metals,
156, 157. A fall in the value of money, raises the price
of provisions, 180—186. The demand for, regulated by
. its value, and its value by its quantity, 916. Low value
of, in Spain, prejudicial to the commerce and manufac-
tures of that country, 221 — S24. Observations on the
rates of interest for money, 351 — 353. The value of,
though partially degraded by a bounty on com, yet not
permanently degraded, 373, 374. The quantity of, cm-
ployed in a country, dependant upon its value, 420, 421.

INDEX. 531

Effects of the state charging a seignorage on coining mo-
ney, 422, 423, 446, 447.
Monopo/y price, observations on, 289—293. Variation in va-
lue of monopolized commodities accounted for, 465.

National Debt, observations on, 288, 289.

Necessaries, tax on, a cause of the high price of provisions,
185—190.

Net Revenue, advantages of, unduly estimated by Adam Smith,
415, and by M. Say, ibid, note. Examination of their
doctrines, 416 — i^O. The labouring classes have an inte-
rest in the manner in which the net income of the country
is expended, 475 — 478. Is not diminished by a propor-
tionate diminution of gross revenue, 511 — 513.

Paper Currency, circulation of, explained, 422. Paper-mo-
ney not necessarily payable in specie, to secure its value,
423, 424. But the quantity issued must be regulated ac-
cording to the value of the standard metal, 424. The
Bank of England, why liable to be drained of specie for its
paper currency, 425, 426. Compelling the Issuers of
paper-money to pay their notes either in gold coin or bul-
lion, is the only controul upon their abusing their power
of issuing such money, 427 — 430. Provided there were
perfect security against such abuse, it is immaterial, in a
national point of view, by whom paper-money is issued^
'jt33. Illustration of this point, 434 — 439.

Pitt (Mr.), observation of, on the poor laws, 103, note.

Poor-laxM, pernicious tendency of, as they now exist, 102, 103
— 106. Remedies for, 104.

Poor Rates, nature of, 300, 301. How levied, 301—303.
More falls on the farmer than on the manufacturer, in pro-
portion to their respective profits, 303 — 306.

Population, increase of, no cause of the rise of rent, 505.

Price (real) of things, distinguished, 3, 4. Natural and mar^

M M 2

551 INDEX.

ket prices diitinguiahed, and how governed, 80— S5. Par-
ticularly of labour, 87, 88-91. The prices of commodi-
ties not necessarily raised by a rise in the price of labour,
112, lis. Rise of price on raw produce, the only means
by which tiie cultivator can pay the tax impoaed thereon,
170. The market, but not the natural price of manu&c-
tures, raised by bounties on their exportation, 868—370.
The influence of demand and supply on prices, considered,
460—465. Alteration in the market price of com, encou-
rages its production, 508 — 510.
Produce of land, and labour of the country, must be divided
between capitalists, landlords, and labourers, to afford a
criterion of rent, profits, and wages, 49—52. The rise
of raw produce in comparative value, accounted for, 63.
Rise in the price of raw produce, lowers profits, if accom-
panied by a rise in wages, 113, 114. Effect of taxes on
raw produce, 169, 170—172. Tax on raw produce raises
the price of wages, 173, 174. Objections against taxing
the produce of land, considered, 174—190. Remarks on
the inconveniences supposed to result from the payment of
taxes by the producer, 457 — 459.
Production y difficulty of, benefits the landlord, 70, 71. The
cost of production, the regulator of the price of commo-
dities, 460, 481, 499—505.
Profits of stock difficult to ascertain, 348. The quantity of
labour necessary to obtain the produce of land, is the cri-
terion by which to estimate the rate of profit, wages, and
rent, 49—52. Affected by the rise and fall of price, 80,
81. A rise in the price of corn, productive of a dimination
in the money vclue of the farmer's profits, 108 — 112. A
rise in the price of raw produce, if accompanied by a rise
of wages, lowers the agricultural and manufacturing pro-
fits, 113—116. Proofs, that profits depend on the quan-
tity of labour requisite to provide necessaries for labouren,-
-on that land, or with that capital which yields no renf^ 1 17
—128. Effects of an extension of foreign trade on profits,
131. Proofs, that the profits of the favoured trade wfll
speedily subside to the general level, 132—137. And so

I^7DEX. 5SS

with respect to home trade^ 188--140. Further proofs
that profits depend on real wages, 152, I5S. Tax on ne-
cessaries virtuallj a tax on profits, 231. Effects of a taxa-
tion of profits, considered, 252—244. Tlie profits of stock
diminished by a tax on wages, 245. Effects of accumula-
tion on profits and interest, 338 — 353.

Prohibition of importation of corn, effects of, considered, 369
—371.

Propert^y transfers of, impeded by the existing stamp duties,
166—168.

PraoisioTUy causes of the high prices of, 176. First, a defi-
cient supply, 177. Secondly, a gradual increasing de-
mand, ultimately attended with an increased cost of pro-
duction, 178 — 180. Thirdly, a fall in the value of money,
180. Fourthly, a tax on necessaries, 185—190.

Bentf nature of, 53 — S5> Adam Smith's doctrine of rents
considered, 54. The different productive qualities of
land and increase of population, the cause of rents, 55—
57. Rise of, the effect of the increasing wealth of a
country, 65 — 67. Influence of the prices of corn on rent,
67, 68. Effects of agricultural improvements on rent, 69
— 73. Observations on the rent of mines, 76 — 79. Falls
on the consumer, but never on the farmer, 113. Tax
on rent falls wholly on the landlords, 191. And discou-
rages cultivation, 192 — 194. Corn-rents materially afi^ect-
ed by tithes, 196, 197* Examination of Dr. Adam Smith's
doctrine concerning the rent of land, 388—402. And of
Mr. Malthus's opinions on rent, 483 — 498. Increase of
population is no cause of the rise of rent, 505. Neither
are agricultural improvements, 510. Loss of rent, the
effect of a low price of corn, 519.

Revenue^ gross and net, nature of, 415 — 420.

Riches defined, 320. Difference between value and riches,
320 — 326. Means of increasing the riches of a country,
326, 327. Erroneous views of M. Say on this subject
considered, 329 — 337.

534 INDEX.

Sat/ (M.)> contradictory opinions of, on the regulation of price,
by the cost of production, 61, 62, notes. His just remarks
on the impolicy of taxes, on the transfer of property, 16S.
Correction of his opinion on credit, 289» note. Erroneous
view of, concerning the principles of the land-tax in Great
Britain, corrected, 208 — 213. Examination of some of his
principles of taxation, 271 — ^280. Remarks on his mis-
taken view of the high duty on cotton, 275, note. Of
value and riches, 329 — 337. Remark of, on loans, 352,
353, notes. Examination of his doctrine concerning
bounties on exportation, 376 — 379. And gross and net
revenue, 4>15-^— 4*20. Observations on his statement of the
inconveniences resulting from payment of taxes by the pro-
ducer, 457, 458. His opinion on the inflpence of demand
and supply of prices, considered, 46 1| 462. Is mistaken in
his view of the subject of gross and net produce, 512, note.
Scarcity, a source of exchangeable value, 2.
SeignoragCy effects of, on the value of money, 422, 423, 446, 447.
Simonde (M.), remarks on the opinion of, concerning the incon-
veniences resulting from the payment of taxes by the pr^
ducer, 459.
Silver. See Gold and Silver,
Sinking Jundy in England, merely nominal, 288, 289. How

conducted, 435.
Smith (Dr. Adam), on the meaning of the term value, 1. M.
Say's observations on it considered, 334 — 337. His doc-
trine that corn is a proper medium for fixing the varying
valufe of other things, examined, 5 — 7. Strictures on hb
doctrine relative to labour being the sole ultimate standard
of the exchangeable value of commodities, 9, 12, 13,
note. And on his definition of rent, 54. His theory
of productive and unproductive labour considered, 64 —
66, notes. His objections to taxes on the transfer of pro-
perty, 166, 167. Correction of his erroneous view of the
inequality of taxes on land, and all other taxes, 204—206.

INDEX* 535

His opinion on the taxes upon the wages of labour, 245,
246. Examination thereof by Mr. Buchanan, 246, 247*
Observations thereon by the author of this work, 247 — 267«
Correction of his mistaken view of taxes upon luxuries,
268 — 271. His description of riches, S20. Remarks
thereon, 326 — 328. And on his opinion, that the fall of
profits is produced by accumulation of capital and by the
competition resulting from it, 338'— 348. Remarks on his
doctrine concerning bounties on exportation, 368 — 371.
Examination of his doctrine concerning the rent of land,
388—402. And of colonial trade, 403—414. And on
gross and net revenue, 415 — 420. Strictures on his prin-
ciples of paper currency, 426. His statement respect-
ing the advantages of the Scottish mode of affording
accommodation to trade, disproved, 439 444*. Remarks
on his doctrine relative to the comparative value of gold,
corn, and labour, in rich and in poor countries, 448 165.

Spaiuy commerce and manufactures of, injured by the low value
of money there, 221 — 224.

Stamp-duty^ weight of, a bar to the transfer of property, 167,
168.

Standard^ invariable, of value, 41—46.

Slock'holdersf how affected by a great fall in the price of corn,
516—519.

Supply and demand, influence of, on prices, 460« Opinions on
this subject of M. Say, 461, 462. And of the Eari of
I^uderdale, 462 — 464. Strictures thefeon, 464, 465.

Taxesy nature of, explained, 162. Impolicy of taxes on capital,
163, 164. Taxes upon the transfer of property, 166 — 168.
On whom the several kinds of taxes principally fall, 167*
Effect of taxes on raw produce, 169. A rise of price in
raw produce the only means by which the cultivator can
pay the tax, 1 70. Such tax in fact paid by the consumer,
ibid. Tax on raw produce and on the necessaries of the
labourer^ raises the price of wages, 173y 174. Objections

$96 INDEX.

against the taxation of the produce of land considered and
refuted, 176—190. Tax on rent falls entirely on the
landlords, 191- And discourages cultivation, 192 — 104.
Tithes, an equal tax, 195. Difference between them and
a tax on raw produce, 195, 196. Objections to them, 197
— 200. Tax on land, virtuallj a tax on rent, £01. They
ought to be dear and certain, 212* Errors of Adam
Smith, on this subject, corrected, 204? — ^206. And also of
M. Say, 208 — ^213. E&cts of taxes on gold considered,
21 3-— 225. Ground rents, not a fair subject of taxation,
220. Taxes on housesj by whom ultimately borne, 227*
Taxes on necessaries virtually a tax on profits, 23 1 • Effects
of taxation of pi^fits considered, 232 — 234. Effects of
taxes upon wages, 2i5 — ^280. Taxes upon luxuries, 231.
Advantages and disadvantages of, 272, 273. Proper
objects of taxation, 377— -279. Observations on the taxa-
tion of other commodities than raw produce, 281, 282.
Effect of taxes to defray the interest of loans, 282 — 288.
Remarks on the tax upon malt, and every other tax on raw
produce, 294*^-299. Nature and operation of the poor-
rate, 300 — 306. Examination of the inconveniences sup-
posed to be sustained by the payment of taxes by the pro-
ducer, 457 — 459.

Tithes^ nature of, 195. Are an equal tax, ibid. Difference be-
tween tithes and a tax on raw produce, 195, 196. Tithes
materially affect com rents, 196, 197* They act as a
bounty on importation, and therefore are injurious to land-
lords, 198, 199. Do not discourage cultivation, 206.

TradCf general causes of sudden changes in the channels of,
307 — 309* More particularly the commencement of war
after a long peace, or vice versa, 310, 311. The effects
of such revulsions on agriculture, considered, 312 — 319.
Observations on the carrying trade, 945, 346. Impor-
tance of a free trade, 376, 377. Observations on colonial
trade, 403—414. See Foreign Trade.

Utiliii^f essential to exchangeable value, 2.

INDEX. 597

ValuCt definition of, 1. The distinctive properties of value
and riches considered, 320—826. See Labour, Utility
essential to exchangeable value, 2. Scarcity, one source
of such value, ibid. The quantity of labour required to
obtain commodities, the principal source of their ex«
changeable value, 3 — 15. The effects of accumulation
of capital on relative value, 16—25. The principle, that
the quantity of labour bestowed upon the production of
commodities regulates their relative value, considerably
modified by the employment of machinery and other fixed
and durable capital, 25 — 35. The principle, that value
does not vary with the rise or fall of wages, is also modified
by the unequal durability of capital, and by the unequal
rapidity with which it is returned to its employer, 36^-41.
An invariable measure of value considered, 41—46. Dis-
tinctive properties of value and riches, 320 — 337* Effects
of a rise in wages on relative value, 37> 38, Effects of
payment of rent on value, 53. Variations in the value of
money make no difference in the rate of profits, 51, 52.
The value of money how affected by the imprDvements in
tlie working of mines, 156, 157* The value of gold and
silver is in proportion to the labour necessary to produce
and bring them to market, 427. Investigation of the com-
parative value of gold, com, and labour, in rich and in poor
countries, 448—465.

Wages, effects of a rise in, on relative value, 24 — 36, 41 --48.
Natural and market prices of labour, 87 — 89. Increase of
capital in quantity and value, increases the natural price
of wages, 89, 90* Increase of capital, but not in the value,
augments the market price of wages, 90. Influence of the
supply and demand of labourers on wages, 92 — 95. Proofs
that the increasing difficulty of providing an additional

538 INDEX.

quantity of food with the same proportional quantity of
hibour, will raise wages, 96»||[r* -^ ^^ ^^ wages not
necessarily productive of comfort to the labourer, 99, lOO.
Wages ought)jo be controlled '•by the legislature, 102.
A rise of wages not neceuaril^ productive of a rise in the
prices of commodities, 95— 97, 100. Wages will be raised
by a tax on necessaries, 178, 174. And by a tax on wages,
245. Impolicy of regulating money wages by the price of
food, 177, 178. Effects of a tax .upon wages, considered,
246—280.
Wealthy causes of the increase of, 65— 67.

THE END.

O. WOODFALL, PRINTER,
/ ANOKL COURT, SKINNSR STREET, LONOOR.

' r

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